Last few days have been quite eventful for the GST canvas which continues to be the quickest headline grabber in the media. The new levy has replaced central taxes including central excise duty, service tax, countervailing duty and state taxes such as value added tax, purchase tax and entertainment tax. GST has completely overwritten the existing tax laws. Entire scheme of Indirect Taxation has undergone a radical overhaul. So, to cope up with the change, transitional provisions are created under GST to ensure smooth and hassle-free adoption of GST to safeguard the interests of the existing taxpayers and to carry forward the credit of the Pre GST regime to the GST regime. Our article aims to discuss whether Education cess and Secondary Higher Education cess credit can be carried forward from pre-GST regime to GST.
The registered persons are allowed to carry forward of credit shown in the return of the earlier tax regime to the GST Regime . Provisions have been made for smooth transition of Input tax credit available under VAT, Excise Duty or Service Tax to GST.
Pre conditions for carrying forward credit of the pre GST regime are as follows:
- The tax paid must be recorded in the books and the said amount of credit must be available as input tax credit under the earlier acts as well GST Act.
- All returns for last six months immediately proceeding 1st July, 2017, must be filed.
- The said amount of credit must not relate to goods manufactured and cleared under such exemption notification as was notified by the Government.
Therefore, as per the said section, credit that has been filed in the registered person’s returns is eligible to be carried forward in the GST regime. A registered person can carry forward the credit by filing TRANS- 1 form .
The list of eligible duties where credit can be claimed has been specified . This article aims to remove the grey area revolving around the carry forward of credit. The explanation to the Section 140(10) mentions a list of eligible duties like additional duty of excise, additional duty leviable under Customs Tariff Act and others where credit can be claimed. Education cess and Secondary Higher cess do not find a mention in the list specified as per the Act. However, these cess are eligible as Cenvat credit as per Rule 3(1) of the Cenvat Credit Rules, 2004.
Moreover, the list of eligible duties and taxes as mentioned in the explanation to the said Section applies to certain specific sections , which relates to the credit to be carried forward which has not been taken in the return of the earlier Acts. Section 140(1) is not covered within the ambit of definition of eligible duties and taxes.
Therefore, the explanation to Section 140 which lays down the list of eligible duties and taxes are not binding on the section 140(1). Hence, it can be concluded that Education cess and Secondary Higher Education cess that has been recorded in the returns can be claimed as credit to the GST regime as eligible credit through TRAN 1 route.
FAQ by CBEC
As per the FAQ released by the CBEC on time and again basis, the credit of the Education cess and Higher Education cess cannot be carried forward to the GST regime. However, the preamble of the FAQ, states that it cannot be treated as legal provisions. In the light of the above explanation, it is advisable to carry forward the credit of Education cess and Secondary Higher Education cess.
In the light of the above backdrop, it can be concluded that the credit of Education cess and Higher Education Cess can be carried forward through the TRAN 1 route. The GST Act has not clearly barred the availment of such credit in this frontier. However, the same can face litigation in future.
1Section 140(1) of CGST Act, 2017
2 Section 140(10) of CGST Act, 2017
3 Section 140 (3), 140(4) and 140(6) of CGST Act, 2017
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Twenty years of experience in tax practice. Specialist in structuring & planning and tax optimization under indirect tax. Lead eastern India indirect tax practice of Ernst & Young in past.