Ruling that the refund of compensation cess is available in case of zero-rated supply on payment of integrated tax, the Gujarat High Court (Ahmedabad Bench) had granted a refund of compensation cess to the chemical manufacturer (petitioner) on the purchase of coal for the manufacturing of finished goods. Finding that the refund on the cess charge of invoice supplies was rejected by wrongly relying on Circular No. 45/19/2018-GST, as well as Circular No. 125/44/2019-GST, the Court directed the respondent authority to process the refund application of the petitioner to sanction the refund of the CESS amount claimed on unutilized tax credit.
The Division Bench comprising Justice Bhargav D Karia and Justice Pranav Trivedi observed that the petitioner company was engaged in the manufacturing and sale of various chemical products on supply to SEZ as well as for export, and for the production of the same, coal was purchased from the open market and generated its captive power via a captive power plant. Therefore, the cess charge invoice supplies were demanded by way of a refund case.
The observation came while referring to a decision by the Coordinate Bench in the case of Patson Papers Pvt Ltd vs. Union of India [Special Civil Application No. 26250 of 2022], where it was held that “held that the respondent has rejected the refund claim in a wrong manner by misinterpreting the Circular No. 45/19/18 dated 30.05.2018 and Circular No. 125/44/19 dated 18.11.2019. It is further held that the petitioner in such cases can claim for the purchase of coal used for the manufacturing of goods exported, being zero-rated supplies. It was further held that the petitioner may have paid the IGST on the goods exported by it; however, the petitioner was not required to pay any compensation cess as the goods manufactured by the petitioner are exempted from the levy of tax”.
In this case, the petitioner had sought a declaration that paragraph no. 5 of Circular No. 45/19/2018- GST, as well as paragraph no. 42 of Circular No. 125/44/2019-GST being contrary to Section 11 of the GST (Compensation to States) Act, 2017, was manifestly arbitrary and violated Article 14 of the Constitution of India. The petitioner had also sought that the SCN and the Order in Form RFD-06 rejecting the refund claim were wholly without jurisdiction and illegal.
Case Relied On:
Patson Papers Pvt Ltd vs. Union of India [Special Civil Application No. 26250 of 2022]
Appearances:
Advocates Abhay Y Desai and D K Trivedi, for the Petitioner/ taxpayer
Advocate Hetvi H Sancheti, for the Respondent/ Department