YAGNESH

DESAI & CO.

KRISHI KALYAN CESS

– CAN WE CARRY FORWARD CLOSING BALANCE ??

ABHAY DESAI
B. COM., F.C.A., LL.B., D.I.S.A.
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INTRODUCTION

Tweet FAQ’s released by Government has a question (question no. 91) on whether
input tax credit of Swach Bharat Cess (‘SBC’) or Krishi Kalyan Cess (‘KKC’) can be carried
forward under GST ? They have replied that it cannot be carried forward. Whether the
reply is correct considering the provisions of law ?

Before discussing KKC, let us first analyze SBC. As per Rule 3 of CENVAT Credit Rules
(‘CCR’), 2004, credit of SBC was not available. Hence the same would not be part of
closing balance of return filed for period ending on June, 2017. Thus there is no
question of carry forward of said credit.

As far as KKC is concerned, as per Rule 3(1a) of CCR, 2004 only provider of output
service was permitted to avail credit of KKC. Further as per Rule 3(7)(d) of said rules
credit of KKC can be utilized only towards payment of KKC. Hence there is a possibility
that a provider of output service will have closing balance of said credit as per return
filed for period ending on June, 2017. Can we carry forward the said credit ?

LEGAL PROVISIONS

Sec. 140(1) of Central Goods & Services Tax Act (‘CGST Act’), 2017 contains provisions
related to carry forward of credits. Same is reproduced below for ready reference:

‘140. (1) A registered person, other than a person opting to pay tax under section 10,
shall be entitled to take, in his electronic credit ledger, the amount of CENVAT credit
carried forward in the return relating to the period ending with the day immediately
preceding the appointed day, furnished by him under the existing law in such manner
as may be prescribed:

Provided that the registered person shall not be allowed to take credit in the following
circumstances, namely:—

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(i) where the said amount of credit is not admissible as input tax credit under this Act;
or
(ii) where he has not furnished all the returns required under the existing law for the
period of six months immediately preceding the appointed date; or
(iii) where the said amount of credit relates to goods manufactured and cleared under
such exemption notifications as are notified by the Government.’

LEGAL ANALYSIS

As per above provision a registered person, other than person paying tax on
composition basis, shall be entitled to take in his electronic credit ledger the amount
of CENVAT credit carried forward in the return. Unlike Sec. 140(3) where only eligible
duties in respect of stock is allowed to be taken, Sec. 140(1) allows carry forward of
the amount of CENVAT credit. Hence what is allowed to be taken is ‘the amount of
CENVAT credit’.

Explanation to Sec. 142 provides that the expression ‘CENVAT Credit’ shall have the
same meaning as assigned under the Central Excise Act, 1944 or the rules made
thereunder.

Said expression has not been defined under the Central Excise Act, 1944. However, we
find reference to the same in CCR, 2004. Rule 3(1) provides that a manufacturer or
producer of final products or a provider of output service shall be allowed to take
credit (hereinafter referred to as the CENVAT credit) of listed duties and cesses. In fact,
higher education cess as well as secondary higher education cess is part of the list.
Hence if one has balance of the same, one can easily carry forward the same. However,
in the said list we do not find mention of KKC. Will it mean that KKC is not ‘CENVAT
Credit’ ?

KKC was levied under Sec. 161 of Finance Act, 2016. Relevant portion is reproduced
for ready reference:

‘161. (1) This Chapter shall come into force on the 1st day of June, 2016.

(2) There shall be levied and collected in accordance with the provisions of this
Chapter, a cess to be called the Krishi Kalyan Cess, as service tax on all or any of the
taxable services at the rate of 0.5 per cent. on the value of such services for the
purposes of financing and promoting initiatives to improve agriculture or for any other
purpose relating thereto.

(4) The proceeds of the Krishi Kalyan Cess levied under sub-section (2) shall first be
credited to the Consolidated Fund of India and the Central Government may, after due

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appropriation made by Parliament by law in this behalf, utilise such sums of money of
the Krishi Kalyan Cess for such purposes specified in sub-section (2), as it may consider
necessary.’

Post the levy, Rule 3(1a) was inserted in CCR, 2004 to enable credit of the same. Said
sub-rule is reproduced below:

‘Rule 3 (1a): A provider of output service shall be allowed to take CENVAT credit of the
Krishi Kalyan Cess on taxable services leviable under section 161 of the Finance Act,
2016 (28 of 2016)’

Further Rule 3(7)(d) was also inserted to provide restriction on utilization of KKC. It is
also reproduced below:

‘Rule 3(7)(d): CENVAT credit in respect of Krishi Kalyan Cess on taxable services
leviable under section 161 of the Finance Act, 2016 (28 of 2016) shall be utilised only
towards payment of Krishi Kalyan Cess on taxable services leviable under section 161
of the Finance Act, 2016 (28 of 2016).’

From both the above provisions we can see that Rule 3(1) does not define the term
‘CENVAT Credit’. It merely states that all the duties and cesses, credit of which is
available shall be collectively referred as ‘CENVAT Credit’. Hence merely because KKC
is not part of the list does not mean that it is not ‘CENVAT Credit’. If credit is available,
it will tantamount to ‘CENVAT Credit’. Said argument is further fortified from the fact
that sub-rule (1a) clearly provides that a provider of output service shall be allowed to
take ‘CENVAT Credit’ of KKC. Even Rule 3(7)(d) uses the same language. Hence it is
evident that if credit is available, legislators have included the same within the
expression ‘CENVAT Credit’. Instead of enabling credit of KKC by amending Rule 3(1),
legislators have inserted Rule 3(1a). That will not change the nature and KKC will still
remain as ‘CENVAT Credit’.

Without prejudice to above arguments, Sec. 161(2) of Finance Act, 2016 through
which KKC was levied provides that there shall be levied and collected in accordance
with the provisions of this Chapter, a cess to be called the Krishi Kalyan Cess, as service
tax. Hence what is levied is a cess as service tax. Service tax is included within the list
contained in Rule 3(1) of CCR, 2004. Hence on this ground as well KKC is to be regarded
as ‘CENVAT Credit’.

One can also place reliance on the decision of The Commissioner of Central Excise,
Belgaum vs M/s Shree Renuka Sugars Limited 2014 – TOIL – 98- HC- KAR – CX wherein
it was held that assessee is entitled to claim CENVAT credit of sugar cess even though
the same is not specified in the list of duties for credit as such cess is also duty of excise

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considering the fact that it is credited in consolidated fund of India first. As per Sec.
161(4) even proceeds of KKC are credited to consolidated fund of India. Thus even the
said decision supports our view that KKC has to be regarded as ‘CENVAT Credit’.

Lastly proviso to Sec. 140(1) provides that registered person will not be allowed to take
credit where the said amount of credit is not admissible as input tax credit under CGST
Act, 2017. If KKC credit, which is part of closing balance, has been availed on services
which are not covered u/s 17(5) of CGST Act, 2017 (e.g. rent-a-cab, outdoor catering,
etc.) there is no question of any restriction in carry forwarding the balance of KKC.

CONCLUSION

We thus conclude that closing balance of KKC in the return for period ending June,
2017 is entitled to be credited in the electronic credit ledger as per provisions of Sec.
140(1) of CGST Act, 2017. Tweet FAQ’s cannot override the express provisions of law
and as Government itself claims that the said FAQ’s are only for educational purpose
and not legal purpose.