Denial of pre-GST credit transition open to challenge

Section 28 of the Central Goods and Services Tax (Amendment) Act, 2018 (amendment act), has created ripples across the industry because of the insertion of explanation 3 to section 140(1), which retrospectively denies the transition of education cess (EC) and secondary higher education cess (SHEC) credits.

The levy of EC and SHEC on excisable goods and taxable services was introduced in the Finance Act, 2004, and Finance Act, 2007, respectively. EC and SHEC were also included within the ambit of central value added tax (CENVAT) credit under rule 3 of the CENVAT Credit Rules, 2004 (CCR). As per rule 3(1), EC and SHEC paid on inputs, capital goods and input services were allowed as credit but in accordance with a proviso to rule 3(7), the credit can be used for payment of output EC and SHEC only.

In 2015, EC and SHEC on excisable goods and services were withdrawn and the CCR was amended to disallow cross-utilization of EC and SHEC credits towards payment of excise duty or service tax. However, the unutilized EC and SHEC credits continued to remain as CENVAT credit.

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