Krishi Kalyan Cess credit can’t be transitioned to GST

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No transitional credit allowed for accumulated KKC under GST: AAAR

Facts of the case:  M/s Kansai Nerolac Paints Limited are engaged in the business of manufacture of Paints and engaged in provision of works contract service. Works contract services are carried out from the Company’s Head Office. Application was filed before Hon’ble AAR, Maharashtra raising the question as to whether the accumulated credit by way of      Krishi Kalyan Cess (KKC) as appeared in the service tax return of Input Service Distributor (ISD) on 30.06.2017 which is carried forward in e-credit ledger under GST will be considered as admissible ITC? Hon’ble AAR of Maharashtra denied transitional credit of KKC.

 Issues involved: Whether transitional credit of accumulated KKC is allowed under GST?

Held: The Hon’ble AAAR, Maharashtra vide Order No. MAH/ AAAR/ SS-RJ/03/2018-19 dated 03.08.2018, upheld the advance ruling of AAR, Maharashtra to deny transitional credit of accumulated KKC as on 30.06.2017 carried forward in e-credit ledger of the appellant maintained under GST. It was observed that KKC could not be adjusted or cross utilized against payment of excise duty or service tax or vice versa. It was to be utilized for payment of KKC only. Thus, it cannot be carried forward.

Our Comments – To remove all the doubts, the CGST Amendment Bill, 2018, proposes to insert an Explanation 3 in Section 140 of the CGST Act, 2017 which clarifies that the expression “eligible duties and taxes” excludes any cess which has not been specified in Explanation 1 or Explanation 2 above and any cess which is collected as additional duty of customs under sub-section (1) of Section 3 of the Customs Tariff Act, 1975. 

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