Gujarat HC allows Refund of unutilised Cess on zero-rated supplies made with payment of IGST

The petitioner company, Atul Limited, manufactures and sells chemical products, including the supply of goods to SEZ units and exports outside India. To manufacture the finished products, the assessee needs electric power. The petitioner generates its own captive power via a captive power plant by using Coal.

A cess of Rs. 400 per ton was charged on the petitioner on the inward supply of coal, on which the petitioner claimed Input Tax Credit (ITC). However, when the petitioner filed a refund claim of the accumulated cess credit, which amounted to Rs. 2,30,206, the GST Department rejected the refund claim, saying that the Cess Credit can only be claimed for the zero-rated supplies made without the payment of IGST. While, In the present case, the petitioner had claimed cess credit on the zero-rated supplies with the payment of IGST. The matter was sent to the Gujarat High Court.

The petitioner company argued that Section 16(1) of the GST Act allows the Tax credit for all inward supplies that are used for the furtherance of business. The company also contended that the provisions related to the availment of tax credits under the GST Act and the provisions related to the refunds of the accumulated credits under the IGST Act shall apply mutatis mutandis, while claiming the tax credit of Cess and the refund of the credits of the said Cess.

The petitioner company also submitted that the issue was already settled in the case of Patson Papers Pvt Ltd vs. Union of India, where the court had allowed the refund for unutilised Cess credits, even if IGST was paid.

The Gujarat High Court agreed with the petitioner and said that the issue has already been decided in Patson Papers Pvt. Ltd., where refunds of unutilized Cess on coal were allowed. Accordingly, the Court directed the GST authority to process the refund of the cess amount claimed on unutilised tax credit.