AAR Appellate Authority Upholds denial of Krishi Kalyan Cess paid Pre-GST rollout [Read Order]

The Appellate Authority for Advance Ruling, Maharashtra has upheld the order of the AAR and clarified that accumulated credit by way of Krishi Kalyan Cess as appeared in the Service tax return of Input Service Distributor (ISD) on June 30 2017 cannot be considered as admissible input tax credit.

The question raised before the AAR was that whether accumulated credit by way of Krishi Kalyan Cess as appeared in the Service tax return of Input Service Distributor (ISD) on June 30 2017 which is carried in the electronic credit ledger maintained by the Company under CGST Act 2017 will be considered as admissible input tax credit?

The applicants, M/s Kansai Nerolac Paints Limited are engaged in business of manufacture of paints and engaged in provision of works contract service as well. The works contract services are carried out from the company’s Head Office.

Before the authorities, the applicant contended that as the CGST liability subsumed KKC lability through a constitutional amendment, the migrated KKC credit will be admissible to set off with KKC liability.

While clarifying the ruling, the AAR Members comprising B V Borhade and Pankaj Kumar answered the question in negative. On appeal, the Members, Sungita Sharma and Rajiv Jalota upheld the finding.

The authority noted that that no reference is made to the KKC until Notification No.28/2016/Central Excise (N.T.) 26 May, 2016 came into effect. The Central Government made the rules which came into effect from 01.06.2016.

These rules were intended to amend the CENVAT Credit Rules, 2004 as per which KKC could be utilized towards payment of KKC only. “The KKC cannot be adjusted or cross utilized against the payment of excise duty or service tax. It was made expressly clear that CENVAT credit of input duty specified in the sub rule above i.e. excise duty, additional excise duty cannot be utilized for payment of KKC. Similarly, the CENVAT credit in respect of KKC cannot be utilized for payment of excise duty or service tax. It could be utilized only for payment of KKC. Thus the CENVAT rules made an exception in respect of credit of KKC,” the appellate authority said.