Patson Papers Private Limited Vs Union Of India & Ors. (Gujarat High Court)
1. The dispute relating to refund of compensation cess paid on inputs used in the manufacture of export products, that are exported on payment of IGST, is put to rest by the judgement of the Hon ‘ble High Court of Gujarat in the case of PATSON PAPERS PRIVATE LIMITED [Special Civil Application No.26250 of 2022].
Read SC Judgment in this case: Cess Refund Cannot Be Denied Merely Because Exports Were Made on Payment of IGST: SC
2. Compensation cess is applicable on the specified goods. Tax payer is entitled to take Input Tax Credit (ITC) of compensation cess and utilize the same towards payment of tax on outward supplies.
3. In case outward supplies are not liable for compensation cess, the ITC gets accumulated, as it cannot be utilized.
4. Tax payer is entitled for refund of accumulated ITC of compensation cess, in proportion to the exports.
5. Consequently, the accumulated ITC, proportionate to the domestic sales gets un-utilised and there is no provision for refund of such ITC.
6. Considering the difficulties faced by the tax payers in getting refund of accumulated cess, proportionate to export sales, Central Board of Indirect Taxes and Customs (CBIC) has issued circular No.125/44/2019-GST dated 18th November 2019 wherein it was clarified at Page No.13 para no.42 as under –
“Doubts have been raised whether a registered person is eligible to claim refund of unutilized input tax credit of compensation cess paid on inputs, where the zero-rated final product is not leviable to compensation cess. For instance, cess is levied on coal, which is an input for the manufacture of aluminium products, whereas cess is not levied on aluminium products. In this context, attention is invited to section 16(2) of the Integrated Goods and Services Tax Act, 2017 (hereafter referred to as the “IGST Act”) which states that, subject to the provisions of section 17(5) of the CGST Act, credit of input tax may be availed for making zero rated supplies. Further, section 16 of the IGST Act has been mutatis mutandis made applicable to inter-State supplies under the Cess Act vide section 11 (2) of the Cess Act. Thus, it implies that input tax credit of Compensation Cess may be availed for making zero-rated supplies. Further, by virtue of section 54(3) of the CGST Act, the refund of such unutilized ITC shall be available. Accordingly, it is clarified that a registered person making zero rated supply of aluminium products under bond or LUT may claim refund of unutilized credit including that of compensation cess paid on coal. Such registered persons may also make zero-rated supply of aluminium products on payment of Integrated tax but they cannot utilize the credit of the compensation cess paid on coal for payment of Integrated tax in view of the proviso to section 11(2) of the Cess Act, which allows the utilization of the input tax credit of cess, only for the payment of cess on the outward supplies”.
7. Further, it was clarified in Circular No. 45/19/2018-GST Dt.30-05-2018 as under:
5. Refund of unutilized input tax credit of compensation cess availed on inputs in cases where the final product is not subject to the levy of compensation cess:
5.1 Doubts have been raised whether an exporter is eligible to claim refund of unutilized input tax credit of compensation cess paid on inputs, where the final product is not leviable to compensation cess. For instance, cess is levied on coal, which is an input for the manufacture of aluminum products, whereas cess is not levied on aluminum products.
5.2 In this regard, section 16(2) of the Integrated Goods and Services Tax Act, 2017 (IGST Act for short) states that, subject to the provisions of section 17(5) of the CGST Act, credit of input tax may be availed for making zero rated supplies. Further, as per section 8 of the Goods and Services Tax (Compensation to States) Act, 2017, (hereafter referred to as the Cess Act), all goods and services specified in the Schedule to the Cess Act are leviable to cess under the Cess Act; and vide section 11 (2) of the Cess Act, section 16 of the IGST Act is mutatis mutandis made applicable to inter-State supplies of all such goods and services. Thus, it implies that all supplies of such goods and services are zero rated under the Cess Act. Moreover, as section 17(5) of the CGST Act does not restrict the availment of input tax credit of compensation cess on coal, it is clarified that a registered person making zero rated supply of aluminum products under bond or LUT may claim refund of unutilized credit including that of compensation cess paid on coal.
5.3 Such registered persons may also make zero-rated supply of aluminum products on payment of integrated tax but they cannot utilize the credit of the compensation cess paid on coal for payment of integrated tax in view of the proviso to section 11(2) of the Cess Act, which allows the utilization of the input tax credit of cess, only for the payment of cess on the outward supplies. Accordingly, they cannot claim refund of compensation cess in case of zero-rated supply on payment of integrated tax.
8. However, by referring to the above two circulars, GST department(s) has been denying the refund claims filed by the exporters, in proportionate to the exports made on payment of IGST, stating that refund is permitted only in case of exports under LUT, but not in case of exports on payment of IGST.
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