High Court Allows Refund of Compensation Cess on Coal for IGST-Paid Exports [Read Order]

The publicly traded chemical product manufacturer and exporter, the assessee, filed writ petitions contesting the denial of its claims for reimbursement of the accumulated compensation cess credit on coal used in its captive power plant. The company received a cess credit of Rs. 13.46 crore for FY 2019-20 and requested a refund of Rs. 3.39 crore for zero-rated exports that were paid for with IGST.

Based on CBIC Circulars, the Assistant Commissioner issued a show-cause notice, stating that refunds of cess credit were only available in cases where exports were made without payment of IGST. The claim was rejected by the Order-in-Original and upheld on appeal. The assessee company filed a complaint in the High Court, claiming that it was entitled to these reimbursements under Section 11 of the Compensation to States Act, 2017, in conjunction with Sections 16(3) of the IGST Act and 54(3) of the CGST Act.

Issue Raised: Whether exporters who pay IGST on zero-rated supplies are eligible for a reimbursement of the compensation cess paid on coal for unused input tax credit, even though CBIC circulars prohibit such reimbursements.

HC’s Ruling: The High Court granted the petitions, concluding that it was against the law to deny a refund based on CBIC circulars. The Bench held that Section 11 of the Compensation to States Act renders the refund provisions of the GST and IGST Acts applicable mutatis mutandis to compensation cess, in accordance with its previous decision in Patson Papers Pvt. Ltd. v. Union of India.

The Court decided that since no cess is imposed on the exported final goods, the exporter is entitled to a refund of any unused compensation cess credit on inputs like coal, even when exports are made after IGST has been paid. Only when a cess is payable on outgoing supplies, which was not the case in this instance, does the Cess Act‘s proviso to Section 11(2) restrict utilisation apply. The Department was instructed to approve the reimbursement of the cess that the assessee had claimed, and the contested orders were revoked.

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