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Transitional provisions have been prescribed in the GST law which provides tax treatment for transitional matters like spill over transactions, transitional credits etc. It allows existing taxpayers to transfer the input tax credit available as closing balance in the existing tax returns to the GST returns. Therefore, assesses were able to transfer the closing balance of credit in respect of Central Excise duty, Service Tax, Local VAT etc. as the opening credit balance in the GST returns. The issue has been faced by the taxpayers and doubts have arisen upon transfer of credit available as closing balance in respect of Krishi Kalyan Cess, Education cess & Secondary and Higher education cess etc. to the GST regime. Different interpretations have been placed and as usual revenue authorities are drawing interpretation as beneficial to them and accordingly transfer of such credits is being denied and assesses opine differently leading to a tug of war and an unnecessary long standing litigation. This article attempts to explain the legal provision of the law in this regard and practical solution.

Section 140 (1) of the GST law permits carry forward of Credit to GST regime. The CGST act provides that 'a person shall be entitled to take, in his electronics credit ledger, the amount of CENVAT Credit carried forward in the last return filed under pre-GST regime subject to certain conditions.” The term used is 'CENVAT Credit” and this term has been defined in the explanation to section 142 being same as meaning assigned to it under Central Excise Act or rules issued there under.

Rule 3 of CENVAT Credit Rules provides a list of various taxes, duties credit of which would be allowed as 'CENVAT Credit'. For instance, Rule 3(1a) states that '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”. Similarly, by virtue of this rule, credit was also allowed under the earlier law on Education cess and Secondary & Higher Education cess.

Further, there is condition that the credit of KKC can be utilised only against the liability of KKC arising on provision of output service, similarly for education cess and Secondary & Higher Education cess.

Above definition of CENVAT Credit indicates that the KKC, EC and SHEC are included within ambit of definition of CENVAT Credit and therefore credit in respect of the same was allowed under the earlier law. Needless to say, that the KKC is/was not available to manufacturer as they did not have any liability to pay KKC.

It shall be imperative to discuss at this juncture that one of the restrictions placed in section 140(1) is that the transfer of credit shall not be available if the said amount of credit is not admissible as input tax credit in the GST law. It is pertinent to note that availability of GST credit is discussed elaborately in Chapter V of the GST law and upon referring various sections of the said chapter, one can note that no any restriction or inadmissibility has been placed restricting the availability of KKC, EC or SHEC.

Further, one of the contention raised by department is that KKC, EC and SHEC shall not be available for transfer as the said credits are not covered within the meaning of the term 'eligible duties' as defined u/s 140(3) of the transitional provisions and hence credit in respect of the same shall not be allowed to be transferred to the GST regime.

However, here it is important to understand the legal framework of the transitional provisions. If one closely read through the transitional provisions, it can be stated that meaning of the term 'eligible duties' is provided for transferring the transitional credit in respect of stocks being covered u/s 14(3) whereas transfer of KKC, EC & SHEC is in respect closing balance being covered u/s 140(1).

Another aspect that would merit discussion here is in regard to Rule 117 of the CGST Rules which provide the mechanism for carry forward of credit. Sub Rule 1 of the said Rule read as under:

Every registered person entitled to take credit of input tax under section 140 shall, within ninety days of the appointed day, submit a declaration electronically in FORM GST TRAN-1, duly signed, on the common portal specifying therein, separately, the amount of 'eligible duties and taxes as defined in explanation to section 140” to which he is entitled under the provisions of the said section:

The opening part of the rule provides that it is applicable for carry forward of credits provided under entire section 140. (There are many sub-sections within section 140 which allows for carry forward of credit one of which is sub section 1 as discussed above). However, later on the scope has been confined to carry forward of only eligible duties and taxes as defined in the explanation to section 140.

Eligible duty has been defined in the explanation to section 140 only with reference to one of the subsection i.e. 140 (5) (dealing with goods or service received by the registered person in the month of July where tax has been paid by the supplier under pre-GST Law). The definition of eligible taxes does not include the KKC. It is confined only to service tax charged under section 66B of the Finance Act, 1994.

The usage of the word 'eligible duties and taxes” in the later part of the Rule has confined the scope of carrying forward of credit by excluding the KKC within its ambit.

It has been held in case of MEGA CABS PVT LTD Vs UNION OF INDIA AND ORS 2016-TIOL-1061-HC-DEL-ST, that 'the Central Government cannot arrogate to itself powers which were not contemplated to be given to it by the Parliament when it enacted the FA, 1994 Rule 5A(2) of STR, 1994 is ultra vires the FA, 1994”. Therefore, one has to note very important aspect that what has been provided in the Act cannot be taken away by the Rules. In other words, Rules cannot override the Statutory Provisions of the Law. In case of any discrepancy between two, the section shall prevail over rules.  

When the section 140 (1) clearly provides that the CENVAT Credit (as defined in the Cenvat Credit Rules) as per last return filed before GST can be carried forward under GST Law, the Rule cannot curtail the rights by confining it to merely service tax portion and excluding the carry forward of KKC.

Based on above, we are of the considered view that the credit of KKC taken in last return filed for the period upto 30th June should be allowed to be carried forward in the GST regime.

It is equally important to note that the credit cannot be carried for KKC in respect of services which have been received after the appointed date in respect of which tax was paid by the supplier prior to the GST Law as such cases are covered by section 140 (5) of the CGST Act. Hence, KKC credit on services in transit as on 30th June, 2017 cannot be allowed to be carried forward.

At the same point of time, the revenue is also expected to take a view that:

  1. The credit of KKC cannot be carried forward in view of the scope confined in Rule 117.
  2. Even if allowed to be carried forward, it cannot be utilized as there exists no output liability of KKC after the introduction of GST.

To protect the interest of organization, there could be the following approach to deal with the situation:

Option 1: If the amount involved is not substantial and the company do not want to dispute with the department, then carry forward of these credits can be ignored as the cost of litigation in such cases can be higher than the benefit arising out of it.

Option 2: If the amount involved is substantial or company intends to carry forward it but want to avoid the risk of department litigation, it may avail the credit in the electronics credit ledger and reverse it under the protest without utilisation. Wait till clarity emerges in the law based on clarification by department or any judgment of law. This step would ensure that the right of the company in case of favourable decision is protected and at the same time, there will not be any adverse consequences as to the interest or penalty. Needless to mention that the credit shall not be available for utilisation during the period reversed under protest. The fact of availment of credit and its reversal under protest should be intimated to department along with basis thereof.

Option 3: Avail the credit and utilise against output liability of GST. However, this should be done under the intimation to department. It is relevant to note that this option is likely to invite the litigation by department which has to be appropriately addressed.


Once the transition forms are filed then there will not be any recourse available in the hands of assessee to avail these credits, therefore any decision in this regard must be taken immediately followed by a suitable and timely action.

The authors can also be reached at or


Published by

Ravi Kumar Somani
(Indirect Taxes Specialization)
Category GST   Report

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