Pranav B Prem

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that cash refund of Education Cess, Secondary and Higher Education Cess (SHE) and Krishi Kalyan Cess (KKC) is not permissible under the provisions of Section 142(3) of the CGST Act. The Larger Bench comprising R. Muralidhar (Judicial Member), Binu Tamta (Judicial Member) and P. Anjani Kumar (Technical Member) concluded that no refund can be granted for the blocked balances of the above cesses and that refund claims filed after 1.3.2016 / 1.6.2016 would be barred by limitation.

Also Read: Commission Earned By Indenting Agent To Foreign Group Entities Qualifies As Export Of Services: CESTAT Mumbai Quashes ₹2.77 Crore Service Tax Demand

The reference before the Larger Bench arose from conflicting views of different coordinate Benches of the Tribunal on whether unutilised balances of Education Cess (EC), SHE Cess and KKC — which were not allowed to be transitioned into the GST regime — could be refunded in cash under Section 142(3) of the CGST Act. The issue gained national significance as several taxpayers had carried forward the blocked balances of these cesses in their CENVAT accounts as of 30 June 2017 and sought their refund after GST implementation.

The matter stemmed from the appeal of KEI Industries Ltd., Bhiwadi, which challenged the rejection of its refund claim of ₹7,42,108, representing the closing balance of EC/SHE/KKC reversed from TRAN-1 pursuant to GST audit objections. The appellant argued that CENVAT credit validly earned constitutes an indefeasible and vested right, relying extensively on the Supreme Court's rulings in Eicher Motors and Slovak India. The appellant submitted that the accumulated credit of cesses could not lapse in the absence of express statutory authority and that Section 142(3) of the CGST Act expressly allowed cash refund of pending pre-GST credits without prescribing limitation, rendering the 2021 refund claim maintainable. Intervenors JK Lakshmi Cement and BHEL supported the stand and argued that the Tribunal’s ruling in Nu-Vista Ltd. allowing cash refund of blocked cesses correctly interpreted the law.

Also Read: DGFT’s EODC Is Determinative of Export Obligation Compliance: CESTAT Quashes Customs Duty Demand on Imported Cars

The Revenue, however, opposed the claim, asserting that the transitional mechanism under Section 140 of the CGST Act is distinct from the refund mechanism under Section 142. It was contended that failure to transition a credit cannot create a fresh entitlement to refund. The department argued that refund claims under Section 142(3) must satisfy the conditions of Section 11B of the Central Excise Act, including limitation, and that blocked cesses were a “dead claim” after their abolition in 2015. Reliance was placed on decisions of the Kerala High Court (Muthoot Finance), Madras High Court (Sutherland Global Services), Delhi High Court (Cellular Operators Association of India) and Rajasthan High Court (Banswara Syntex), all of which rejected refund or merger of cess balances.

After hearing both sides, the Tribunal observed from the statutory history that upon exemption of Education Cess and SHE Cess w.e.f. 1.3.2015 and 1.6.2015, utilisation of accumulated balances under these heads became impossible, and assessees who were aggrieved could have either sought refund or permission to merge such credits with the CENVAT pool during the pre-GST regime. The Tribunal noted that the present appellants did not pursue either remedy between 2015 and 2017 and carried forward the blocked balances across returns. Examining Rule 3(7) of the CENVAT Credit Rules, the Bench remarked that cross-utilisation of cess credit with basic excise duty/service tax was never permitted except for a brief transitional window, and that the statutory scheme did not create a mechanism for encashment of such blocked credit.

The Tribunal emphasized that there was no provision under the CENVAT Credit Rules, 2004 permitting merger of blocked cesses with excise duty/service tax or allowing refund of such amounts under Section 11B, even before the introduction of GST. It held that Rule 5 of the CCR, 2004 was restricted to refunds linked to export of goods and services and had no application to blocked cess balances. The Bench further recorded that where refund is not permissible under the then-existing provisions, it cannot be claimed through Section 142(3) post-GST, observing that “when the refund is not eligible ab initio, the question of granting it under the provisions of the CGST Act, 2017 cannot arise.”

Also Read: CESTAT Chandigarh: Refund of Excise Duty on Ambulances Not Permissible as Assessee Is Neither Manufacturer Nor Buyer

The Larger Bench of the CESTAT has conclusively held that cash refund of Education Cess, SHE Cess and KKC is not admissible, and that refund claims for such blocked balances filed after 1.3.2016 / 1.6.2016 are hit by limitation. Consequently, the Tribunal ruled against the assessee, holding that no cash refund can be granted for unutilised balances of EC/SHE/KKC, thereby upholding the departmental rejection of KEI Industries’ refund claim.

Appearance

Counsel For Appellant: Priyanka Goel, Advocate 

Counsel For Respondent: Rakesh Agarwal, Shri S. K. Ray and Shri V. J. Saharan

Cause Title: M/S. Kei Industries Ltd. Versus Commissioner Of Central Goods & Service Tax & Central Excise-Alwar

Case No: Excise Appeal No. 50090 of 2024

Coram: R. Muralidhar (Judicial Member), Binu Tamta (Judicial Member), P. Anjani Kumar (Technical Member)