Crystal Overseas Vs Union of India & Ors (High Court Bombay)

Bombay High Court held that registered person making a zero rated supply under LUT may claim refund of unutilized credit including that of Compensation Cess. Accordingly, refund of compensation cess granted and appeal is accordingly allowed.

Facts- The Petitioner is a partnership firm registered under the GST Law and having its principal place of business within the jurisdiction of Mumbai in the State of Maharashtra. It is inter alia engaged in the business of exporting beverages out of India. The Petitioner had purchased the said beverages from local manufacturers. The supply of certain beverages attracts GST as well as Compensation Cess u/s. 8 of the Compensation Cess Act.

Thereafter, the Petitioner made exports of the said beverages in the month of April 2021. According to the Petitioner, the said exports under the aforesaid invoices were made under a Letter of Undertaking (“LUT”). Thus, according to the Petitioner, the said exports qualify as zero rated supply of goods u/s. 16 (1) of the Integrated Goods and Services Tax Act, 2017. Accordingly, the Petitioner filed a Refund Application of the accumulated input tax credit for the period of April 2021 vide RFD-01 dated 11^thJune 2021. Respondent granted refund of CGST and SGST and did not granted refund of compensation cess.

The short question raised in the above Writ Petition is whether the Petitioner is entitled to a re-fund of Input Tax Credit (ITC) for compensation cess leviable u/s. 8 of the Goods and Services Tax (Compensation to States) Act, 2017.

Conclusion- Central Board of Indirect Taxes and Customs vide circular dated 18^th November 2019 has clarified that a registered person making a zero rated supply under LUT may claim refund of unutilized credit including that of Compensation Cess.

Held it is absolutely clear that the Petitioner is entitled to a refund even of Compensation Cess. These Circulars have been glossed over by the Additional Commissioner in the impugned order. The Additional Commissioner (Respondent No.2), after setting out the relevant portion of the Circular dated 26^thJuly 2017 merely states that there is no provision for refund of Input Tax Credit other than those defined and included under Section 2 (62) and Section 2 (63) of the CGST Act, which does not include Compensation Cess. We are of the opinion that this finding, and which is the only finding on which the refund is rejected, is wholly unsustainable.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Rule. Respondents waive service. With the consent of parties, Rule made returnable forthwith and heard finally.

2. The short question raised in the above Writ Petition is whether the Petitioner is entitled to a re-fund of Input Tax Credit (ITC) for compensation cess leviable under Section 8 of the Goods and Services Tax (Compensation to States) Act, 2017 (for short “the Compensation Cess Act”).

3. By the order impugned in the present Writ Petition, Respondent No.2, by the impugned order in Appeal dated 23^rdFebruary 2022, upheld the rejection of the refund passed by Re-spondent No.3 vide his order dated 11^th August 2021.

4. The brief facts of the present case are that the Petitioner is a partnership firm registered under the GST Law and having its principal place of business within the jurisdiction of Mumbai in the State of Maharashtra. It is inter alia engaged in the business of exporting beverages out of India. The Peti-tioner had purchased the said beverages from local manufacturers. The supply of certain beverages attracts GST as well as Compensation Cess under Section 8 of the Compensation Cess Act. Thus, the Petitioner had purchased the beverages on the payment of GST and Compensation Cess. These facts are not in dispute.

5. Thereafter, the Petitioner made exports of the said beverages in the month of April 2021 vide sev-eral invoices, the details of which have been set out in paragraph 7 of the Writ Petition. According to the Petitioner, the said exports under the aforesaid invoices were made under a Letter of Undertak-ing (“LUT”). Thus, according to the Petitioner, the said exports qualify as zero rated supply of goods under Section 16 (1) of the Integrated Goods and Services Tax Act, 2017 (“IGST Act”). According to the Petitioner, since the above exports were made under LUT, the Petitioner is entitled to claim refund of the unutilised Input Tax Credit in terms of Section 16 (3) (a) of the IGST Act read with the provisions of Section 54 of the Central Goods and Services Tax Act, 2017 (“CGST Act”).

6. Accordingly, the Petitioner filed a Refund Application of the accumulated input tax credit for the period of April 2021 vide RFD-01 dated 11^thJune 2021. The said application was filed under Rule 89 of the CGST Rules claiming the refund of the accumulated ITC on account of zero rated supply made under LUT. The computation of refund was as follows:-

7. Respondent No.3 thereafter issued acknowledgment of the refund in RFD-02 on 13^thJuly 2021. On the said refund application, Respondent No.3 issued a show cause notice in RFD-08 calling upon the Petitioner to show cause as to why the refund of Rs.9,06,854/- (under the head of C0mpensation Cess) should not be disallowed. To this show cause notice, the Petitioner filed a detailed reply and specifically pointed out Circular No.1/1/2017 dated 26^th July 2017 issued by the Government of India, Ministry of Finance, Department of Revenue (Tax Research Unit). Before Respondent No.3, the Petitioner submitted that the Compen-sation Cess had to be given the same treatment as tax under any other head and accordingly refund should be granted to the Petitioner. This argument of the Petitioner was rejected by Respondent No.3, who passed the refund order in RFD-06 dated 11^th August 2021. By this refund order, Respondent No.3 only granted refund of CGST and SGST and did not grant refund of Com-pensation Cess.

8. Being aggrieved by the rejection of refund of Compensation Cess, the Petitioner filed an Appeal before Respondent No.2. Even before Respondent No.2, the relevant Circulars were brought to its attention and consequently, the Petitioner prayed for grant of refund of Compensation Cess. How-ever, Respondent No.2 vide the impugned order dated 23^rd February 2022, confirmed the stand taken by Respondent No.3 and rejected the Appeal. The ground on which the refund is rejected, can be found from paragraph 5 of the impugned order. Basically, and to put it in a nutshell, the rejection is upheld on the basis that the words “input tax” defined under Section 2 (62) of the CGST Act would not include “Composition Cess”, and therefore, the Petitioner’s refund is rejected.

9. After we have gone through the impugned order, and heard the learned counsel for the parties, we find that the rejection of the refund is wholly unsustainable in law. The definition of the words “input tax” in Section 2 (62) of the CGST Act reads as under:-

“Input Tax is defined under Section 2 (62) of the CGST Act, 2017 as under:-

“input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes-

a) The integrated goods and services tax charged on import of goods;

b) The tax payable under the provisions of sub-sections (3) and (4) of section 9;

c) the tax payable under the provisions of sub-sections (3) and (4) of section 5 of the Integrated Goods and Services Tax Act;

d) the tax payable under the provisions of sub-sections (3) and (4) of section 9 of the respective State Goods and Services Tax Act;

e) the tax payable under the provisions of sub-sections (3) and (4) of section 7 of the Union Territory Goods and Services Tax Act,

but does not include the tax paid under the composi-tion levy;”

10. It appears that Respondent No.2 has got confused by equating composition Levy with Compen-sation Cess. Composition Levy is something that is covered under Section 10 of the CGST Act. Com-pensation Cess on the other hand is leviable under Section 8 of the Compensation Cess Act. This apart, according to Respondent No.2, since Compensation Cess is not specifically mentioned in the definition of “input tax”, the same has been denied to the Petitioner. We find that this issue is squarely covered by two Circulars. The first Circular is dated 26^th July 2017. In para-graph 8 of this Circular, it is made clear that the Exporter will be eligible for refund of Compensation Cess paid on goods exported by him (on similar lines as refund of IGST under Section 16 (3) (b) of the IGST Act).

11. Paragraph 8 of this Circular reads as under:-

“8.In view of the above, it is hereby clarified that provisions of Section 16 of the IGST Act, 2017, relating to zero rated supply will apply mutatis mutandis for the purpose of Compensation Cess (wherever applica-ble), that is to say that:

a). Exporter will be eligible for refund of Compensation Cess paid on goods exported by him [on similar lines as refund of IGST under section 16 (3) (b) of the IGST Act, 2017];

or

b). No Compensation Cess will be charged on goods exported by an exporter under bond and he will be eligible for refund of input tax credit of Compensation Cess relating to goods exported [on similar lines as refund of input taxes under section 16 (3) (a) of the IGST, 2017].”

12. This has been further made clear by a subsequent circular of the Central Board of Indirect Taxes and Customs dated 18^th November 2019. Once again, by this Circular, in paragraph 42, it is made clear that a registered person making a zero rated supply under LUT may claim refund of unutilized credit including that of Compensation Cess. Of course, it is needless to state that the Input Tax Credit taken for Compensation Cess can be allowed for utilization of Input Tax Credit of Cess only for payment of Cess on the outward supplies, and not any other tax. Paragraph 42 of the Circular dated 18^th November 2019 reads thus:-

“42. 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 manufacturer of aluminium products, whereas cess is not levied on alumin-ium 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 sup-plies. 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 Compen-sation 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 regis-tered 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 regis-tered 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.

13. From these Circulars, it is absolutely clear that the Petitioner is entitled to a refund even of Com-pensation Cess. These Circulars have been glossed over by the Additional Commissioner in the im-pugned order. The Additional Commissioner (Respondent No.2), after setting out the relevant por-tion of the Circular dated 26^thJuly 2017 merely states that there is no provision for re-fund of Input Tax Credit other than those defined and included under Section 2 (62) and Section 2 (63) of the CGST Act, which does not include Compensation Cess. We are of the opinion that this finding, and which is the only finding on which the refund is rejected, is wholly unsustainable in light of the clarifications issued by the aforesaid two Circulars referred to by us above.

14. Before parting, we must also take note of the affidavit in reply filed on behalf of Respondent Nos.1 to 3. We have also gone through the affidavit in reply. The affidavit in reply is nothing but a reproduction of the impugned order. In light of the fact that we have already come to the conclusion that the order of Respondent No.2 is wholly unsustainable in law, we are not dealing with the con-tentions raised in the affidavit in reply separately.

15. In view of the foregoing discussion, the impugned order dated 23^rdFebruary 2022 as well as the order passed by Respondent No.3 dated 11^th August 2021 are both hereby quashed and set aside and the Respondents are directed to grant the refund of Compensa-tion Cess in the sum of Rs. 9,06,854/- together with interest in terms of Section 56 of the CGST Act within a period of four weeks from today.

16. Rule is made absolute in the aforesaid terms and the Writ Petition is disposed of in terms thereof. However, there shall be no order as to costs.

17. Though we have disposed of the above Writ Petition, we place it on Board on 17^thFebruary 2025 “for reporting compliance”.

18. This order will be digitally signed by the Private Secretary/ Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.