Pre-GST regime
With effect from July 01, 2010, Clean Energy Cess (renamed subsequently as Clean Environment Cess / "CEC") was levied as a "duty of excise" on removal of raw coal, lignite and peat from the coal mine [vide Section 83(3) of the Finance Act, 2010]. This levy was primarily intended for financing and promoting clean energy initiatives and funding research in the area of clean energy.
No deduction was allowed for loss, if any, on account of washing of coal or its conversion into any other product/form prior to its dispatch from the mine. However, CEC was not levied on washed coal or any other form provided the appropriate cess was paid at the 'raw' stage. Nevertheless, CEC was levied on all forms of imported coal (including washed coal) since imported coal would not satisfy the condition regarding payment of appropriate cess at the 'raw' stage. Hence, CEC (being a "duty of excise") was levied on import of coal into India as "additional duty of customs" (viz., countervailing duty / "CVD") under Section 3(1) of the Customs Tariff Act, 1975.
Post-GST regime
With the ushering in of GST regime from July 01, 2017, the provisions relating to CEC were repealed by the Taxation Laws (Amendment) Act, 2017. On the other hand, GST Compensation Cess (of Rs.400/tonne) was charged on supply of coal from that date. Importers availed transitional credit of CEC paid (of Rs.400/tonne) in respect of coal held in stock as on June 30, 2017, since "eligible duties" defined under Section 140 of the Central Goods and Services Tax Act, 2017 ("CGST Act") included additional duty leviable under Section 3(1) of Customs Tariff Act. A few were quick to quote the judgment (under the erstwhile central excise regime) of the Hon'ble CESTAT, Bangalore in re: Shree Renuka Sugars Ltd. [2007 taxmann 291 (Bangalore-CESTAT)], where it was held that assessee was entitled to claim CENVAT credit of sugar cess paid as additional duty (CVD) on raw sugar imported even though the cess was not listed as one of the eligible duties under the Cenvat Credit Rules.
Taxmen, however, frowned on such credits and notices were issued. A few assessees even dragged the Department to Court on this issue. In re: Mohit Minerals (P) Ltd. [(2017) 84 taxmann 268 (Delhi)] and in re: Hind Energy & Coal Benefication (India) Ltd. [(2018) 91 taxmann 274 (Delhi)], the Hon'ble High Court of Delhi gave interim relief that the assessees need not pay GST Compensation Cess in respect of stocks on which CEC was already paid. This stopped the attempt of taxmen to recover such credit.
Recent amendment
In a bid to counter this, the Government amended Section 140 of the CGST Act by clarifying that the expression "eligible duties" under Section 140 of CGST Act excludes:
- any cess which has not been specified in Explanation 1 or Explanation 2 of that Section (a classic example, Krishi Kalyan Cess / "KKC", which was also disputed like CEC); and
- any cess which is collected as additional duty of customs under Section 3(1) of the Customs Tariff Act.
Although the President gave his assent to this amendment on August 29, 2018, it was made retrospectively effective from July 01, 2017 (i.e., from the date on which the GST law came into force) since the issue related to transitional credit. In this context, it is worth highlighting that Explanation 3 to Section 140 of CGST Act (which was inserted as part of the amendment) starts with the phrase "For the removal of doubts, ...", which is clarificatory in nature. But, for an interesting contrarian view, the judgment of the Apex Court in re: Martin Lottery Agencies Ltd. [2009 (14) STR 593 (SC)] can be referred.
In view of the aforesaid amendment, coal importers are not entitled to avail transitional credit of CEC (a cess collected as additional duty of customs under Section 3(1) of the Customs Tariff Act). Those who availed transitional credit of CEC would be forced to reverse with interest @ 18% per annum. This would significantly dent the profits / metrics of coal importers.
On legal grounds, to corroborate the amendment, it is worth referring the judgment of the Hon'ble High Court of Delhi in re: Cellular Operators Association of India [Writ Petition (Civil) No. 7837/2016 dt. 15.02.2018], where it was held that:
- though Education Cess (EC) and Secondary and Higher Education Cess (SHEC) were in the nature of taxes and not fee, it would be incorrect and improper to treat the two cesses as excise duty or service tax;
- they were specific cesses for the objective and purpose specified;
- credit of EC and SHEC could be only allowed against EC and SHEC and could not be cross-utilized against the excise duty or service tax.
However, on grounds of equity, it is unjust to charge both CEC as well as GST Compensation Cess (of Rs.400/tonne each) on the same inventory (i.e., those lying in stock as on June 30, 2017) especially when the coal importers' margins are thin due to intense competition. It remains to be seen if this double taxation, backed by the retrospective amendment, would draw into a long litigation!
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