Sukraft Recycling Private Limited Vs Union of India (Bombay High Court)
Refund of Compensation cess cannot be denied on export of products not leviable to Compensation Cess: Bombay HC
The Bombay High Court has ruled that a manufacturer exporting goods can claim a refund for unutilized Input Tax Credit (ITC) of the compensation cess paid on raw materials, even if the exported final product is not subject to the cess. The case, Sukraft Recycling Private Limited v. Union of India, involved a manufacturer of Kraft Paper that uses coal as a raw material. While coal is subject to a compensation cess, the final product, Kraft Paper, is not. The GST authorities had denied the refund for the compensation cess credit, arguing that the manufacturer chose to export under payment of IGST and therefore had to follow the same refund mechanism for all taxes. The court rejected this argument, stating that it was “completely lacking in logic.” It highlighted that the legal frameworks for GST and the compensation cess are distinct. The GST (Compensation to States) Act, 2017, provides its own procedure for refunds, which operates independently from the mechanisms for CGST and IGST refunds under Section 16 of the IGST Act. The court cited a previous ruling by the Gujarat High Court in Patson Papers Pvt. Ltd. v. Union of India, which reached a similar conclusion. The judgment noted that a circular from May 2018 also supported the idea that refunds of unutilized compensation cess ITC are permissible even if the final product is not subject to the cess. The court found that because the exported goods are zero-rated, the exporter is entitled to the refund, and the procedural choice to pay IGST on exports should not prevent the refund of the compensation cess. The court directed the revenue authorities to grant the refund with interest within four weeks.
