GST Act | IGST Refund Doesn't Bar Compensation Cess Refund: Bombay HC Calls Department's Interpretation Of S.16(3)(b) “Completely Illogical”.
The Bombay High Court has directed the Department to refund the Input Tax Credit (ITC) of Compensation Cess to the assessee observing that a manufacturer exporting goods is entitled to refund of unutilized Input Tax Credit(ITC) of Compensation Cess, as Section 16(3)(b) of the integrated Goods and Services Tax Act, 2017 must apply to both the Integrated Goods and Services Tax (IGST)...
The Bombay High Court has directed the Department to refund the Input Tax Credit (ITC) of Compensation Cess to the assessee observing that a manufacturer exporting goods is entitled to refund of unutilized Input Tax Credit(ITC) of Compensation Cess, as Section 16(3)(b) of the integrated Goods and Services Tax Act, 2017 must apply to both the Integrated Goods and Services Tax (IGST) and Compensation Cess.
The Division Bench of Bombay High Court at Goa comprising of Justice Bharati Dangre and Justice Nivedita P.Mehta stated that we find the justification offered to refuse the benefit to the Petitioner, to be completely lacking logic. and we say so, since we find that the two components, i.e. the component of input tax credit availed under CGST/IGST are different from that by way of compensation cess. Worth to note that the mechanism prescribed under Section 16 of the IGST Act, 2017, in order to claim refund for making zero rated supply, is restricted to the CGST and IGST and this is evident from the definition of the term, 'input tax credit' under the CGST Act, as it do not include the compensation cess.
The assessee, Sukraft Recycling Private limited is a manufacturer of Kraft paper and registered under GST. In its manufacturing process, it uses coal as raw material in boilers, and coal attracts Compensation Cess under the Goods and Services Tax (Compensation to States) Act, 2017. However, the final product, Kraft Papers, is exported on payment of IGST at 12% without any levy of Compensation Cess on the finished goods.
The assessee had filed a refund application under Section 11(2) read with Section 16(3) of the IGST Act, 2017, claiming unutilized Input Tax Credit of Compensation Cess on coal used in manufacturing exported goods.
The Department, however interpreted Section 16(3) of the IGST Act as, once the assessee opted for a refund of IGST under Clause (b), it could not simultaneously seek a refund of Compensation Cess and therefore rejected the refund application of the assessee.
The assessee assailing the Order of the Department rejecting the refund application moved writ petition before the High Court and argued that the IGST/CGST ITC and Compensation Cess ITC are two different statutory components governed by different enactments.
Also, the assessee relied on Circular No. 45/19/2018 dated 30.05.2018, which confirms the admissibility of refund in situations where Cess is paid on inputs but not levied on the exported goods.
The Department argued that the assessee could have opted for export without payment of IGST by furnishing a Bond/Letter of Understanding and then claiming refund of unutilised ITC, and not having done so, it is barred from seeking Cess refund. Also argued that since the refund of IGST was already processed under Section 16(3)(b), the refund of compensation cess must follow the same route.
The Bench opined the Department's interpretation as “completely lacking logic” observing that the Compensation Cess regime operates independently, and the final product exported by the assessee was not subject to Cess.
Also the Bench observed that the absence of a Bond or Letter of Undertaking cannot be used to defeat the refund because there is no dispute that export of goods actually took place, evidenced by the fact that IGST refund had been sanctioned.
The Court relied on the Gujarat High Court's judgment in Patson Papers Pvt. Ltd. v. Union of India [(2025) 29 Centax 457 (Guj)], wherein it was held that where final exported goods do not attract Compensation Cess, but inputs used do, the accumulated Cess credit must be refunded.
In view of the above, the Court allowed the writ petition by directing the Department to refund the available Compensation Cess within four weeks, together with interest wherever admissible under law.
Case Titled: Sukraft Recycling Private Limited Vs. Union of India and Ors.
Case Number: Writ Petition No. 540 of 2024
Appearance for Petitioner: Mr Prithviraj Chaudhari, Advocate with Ms Cijoni Matilda Dias
Appearance for Respondents: Ms Asha Desai, Central Government Standing Counsel