Commissionerate & Anr vs Joint Commissioner (Appeal)
2022 Latest Caselaw 3151 Cal

                    IN THE HIGH COURT AT CALCUTTA
                      Constitutional Writ Jurisdiction
                              Appellate Side


Present :-   Hon'ble Mr. Justice Md. Nizamuddin


                             W.P.A No. 17567 of 2021

            The Principle Commissioner, CGST & CX, Kolkata North
                         Commissionerate & Anr.
                                     Vs.
      Joint Commissioner (Appeal), Central Tax, Kolkata Appeal - I & Anr.
                                    With
                               WPA No. 12676 of 2021

                       Electrosteel Castings Limited
                                     Vs
      The Assistant Commissioner, CGST & CX, Khardah Division Kolkata
                       North Commissionerate & Ors.


      For the Petitioners
      (in WPA 17567/2021) &
      Respondent no.1
      (in WPA 12676/2021)           :- Mr. Bhaskar Prosad Banerjee, Adv.
                                       Mr. Tapan Bhanja, Adv.

      For the Electrosteel
      (in both cases)               :- Mr. Abhrotosh Majumdar, Adv.
                                       Mr. Rahul Dhanuka, Adv.
                                       Mr. Harsh Choudhury, Adv.

      For the Union of India        :- Ms. Priti Jain, Adv.



      Judgement On                  :-       10.06.2022


   MD. NIZAMUDDIN, J.

Heard learned counsel appearing for the parties.

Both these Writ Petitions being WPA No. 17567 of 2021 filed by the CGST

authorities and WPA No. 12676 of 2021 filed by the assessee company arise

out of the same impugned order dated 5th February, 2021 with corrigendum

orders dated 17th February, 2021 and 29th July, 2021, passed by the Appellate

authority being Joint Commissioner of Income, CGST & CX, Appeal-I, Kolkata,

in Appeal No. 12/CGST/Kol-North/2021 filed by the assessee company against

the order dated 10th July, 2019, passed by Assistant Commissioner of CGST &

CX, Khardah Division, Kolkata-North.

Since the issues involved in both the Writ Petitions are related and relief

asked for in both the Writ Petitions are inter-dependent on the final outcome of

both the Writ Petitions, the same are heard and disposed of by this common

judgment.

Assessee company has filed the instant Writ Petition being WPA No. 12676

of 2021, being aggrieved by inaction and refusal on the part of CGST authority

concerned in disbursing the refund amount of Rs.1,71,20,724/- with

applicable interest as per the aforesaid order dated 17th February, 2021,

passed by the Appellate authority in spite of repeated request by it and it has

made prayer for relief in the aforesaid Writ Petition by way of direction upon

the CGST authorities concerned to refund the aforesaid amount of refund along

with applicable interest to the assessee company as per the aforesaid order of

the Appellate authority dated 17th February, 2021.

CGST authorities have filed the instant Writ Petition being WPA No. 17567

of 2021 challenging the aforesaid impugned order of the Appellate authority

dated 17th February, 2021 which is further appealable before the Appellate

Tribunal by making prayer for quashing of the aforesaid impugned order

mainly on the ground that the same is perverse since the Appellate authority in

the impugned order has not considered the definition of 'non-taxable supply' as

defined in the CGST Act, 2017 and further contending that the sanctioning

authority has rightly included the domestic supply in Adjusted Total Turnover

and has rightly rejected a part of the refund claim of the assessee company and

that the impugned order of the Appellate authority on the basis of which

assessee company has claimed the aforesaid refund is not sustainable.

Assessee company has opposed the instant Writ Petition of the CGST

authority by contending mainly that i) this Writ Court should not interfere with

the aforesaid impugned order of the Appellate authority by exercising its

constitutional writ jurisdiction as an Appellate authority over the same, ii)

there is no jurisdictional excess or error in passing the impugned order by the

Appellate authority, iii) there is no error apparent on the face of record and iv)

the view taken by the CGST authorities defeats the legislative intent and the

formula prescribed in Rule 89 (4) of the CGST Rules.

Main issue in the instant cases which arises for consideration is whether for

the purpose of computing refund of credit of compensation cess to be made

under Section 54 (3) of the CGST Act read with Rule 89 (4) of the CGST Rules

as applicable mutatis mutandis to the Cess Act, the domestic turnover of final

products which are not taxable under the Cess Act, could be excluded to arrive

at the adjusted total turnover under Rule 89(4) of the CGST Rules having

regard to the definition of 'Adjusted Total Turnover" contained in Clause (E) of

the said Rule.

Refund of ITC of Cess in cases of zero rated supply of goods is governed by

the provisions of Section 9(2) and Section 11 of the Cess Act read with Section

54 of the CGST Act read with Rule 89 (4) of the CGST Rules. The formula

prescribed under Rule 89 (4) of the CGST Rules categorically excludes value of

exempt supplies other than zero rated supplies while calculation of adjusted

total turnover. Since "exempt supply" has not been defined under the Cess Act,

definition of exempt supply contained in Section 2 (47) of the CGST Act shall

apply mutatis mutandis for computation of refund of ITC of Cess by application

of provisions of Section 11, Section 9 and Section 2 (2) of the Cess Act.

Assessee company alleges that the CGST authorities concerned have

ignored the expression 'mutatis mutandis" appearing in Section 2 (2) of Cess

Act and have not given any justification as to why domestic supply of finished

goods which are subject to nil rate of Compensation Cess cannot be construed

as exempted supplies.

When it is an admitted fact that refund of unutilized credit of compensation

cess would be available by applying the formula prescribed under Rule 89 of

the CGST Rules, the definition of exempted supplies under Section 2 (47) of the

CGST Act has to be read harmoniously with the provisions of Compensation

Act and goods subject to nil rate of compensation cess are to be construed as

exempt supplies.

Assessee company submits that the Revenue Authorities cannot be allowed

to approbate and reprobate at the same time.

The Assessee submits that the adjudicating authority had taken Net ITC

amount as Rs.3,56,17,002/- for computation of refund, which is after

considering reversal of a sum of Rs.7,01,82,060/- on account of supply of

finished goods not subject to Cess. The reversal itself has been done by the

authority on the basis that supply of finished goods not subject to Cess are

exempt supplies for the purpose of Cess Act and which has not been

questioned by the revenue authorities. However, while in determination of

refund amount, the supply of finished goods not subject to Cess has been

included in the adjusted total turnover although the formula prescribed in Rule

89(4) of the CGST Rules categorically provides for exclusion of the value of

exempt supplies other than zero rated supplies while computing adjusted total

turnover. This contrary stand of the Revenue authorities is wholly

unsustainable.

On perusal of relevant records available, facts appear to me in brief in these

two Writ Petitions are as hereunder.

M/s Electrosteel Castings Limited/the assessee company is inter alia

engaged in the manufacture of ductile iron spun pipes and fittings thereof. The

Assessee inter alia uses coal as an input for manufacture of its finished goods

which is subject to Cess @ Rs.400 per tonne in terms of Sl No. 39 of

Notification No. 1/2017-Compensation Cess (Rate) dated 28 June, 2017.

In the month of September 2018, the Assessee reversed ITC of Cess

amounting to Rs.7,01,82,060/- on account of domestic supply of finished

goods not subject to Cess and Non-GST turnover during the Relevant Period by

treating the same to be exempt supplies in terms of Section 11 of the Cess Act

read with Section 17 (2) and 2 (47) of the CGST Act. The said reversal of ITC of

Cess is not in dispute and is clearly evident from Table 4B of the GSTR 3B

returns filed for the month of September, 2018.

Circular No. 45/19/2018-GST, dated 30th May, 2018, was issued by CBIC

in terms which stood clarified that a registered person making zero rated

supply of final products (which are not subject to Cess) under bond or LUT

may claim refund of unutilized credit including that of compensation cess paid

on coal. Accordingly, the Assessee filed a claim of refund of ITC of Cess

amounting to Rs. 3,74,54,166/- in Form RFD-01A in the month of March,

2019 for the month of September, 2018. The said refund amount was

computed in accordance with the provisions of Section 11 and Section 9 of the

Cess Act and read with Section 16 of the IGST Act, Section 54 of the CGST Act

and Rule 89 (4) of the CGST Rules.

The formula for refund of ITC in case of zero-rated supply of goods or

services without payment of tax under LUT, as contained in Rule 89 (4) of the

CGST Rules categorically provides for exclusion of value of exempt supplies

other than zero rated supplies while calculating adjusted total turnover. In

computing the refund amount, the Assessee excluded supply of finished goods

not subject to Cess and Non-GST turnover during the relevant period, while

arriving at the adjusted total turnover. Net ITC amount was taken after reversal

of Rs. ITC of Cess amounting to Rs.7,01,82,060/-.

In spite of the aforesaid factual and legal position, only refund of Rs.

2,03,33,442/- was sanctioned by the CGST authority while refund claim of

Rs.1,17,20,724/- was rejected by the refund sanction order dated 10th July,

2019. The adjudicating authority computed the refund by adding the supply of

finished goods not subject to Cess in the adjusted total turnover although the

formula prescribed under Rule 89 (4) of the CGST Rules categorically provides

for exclusion of value of exempt supplies, in spite of the fact, that the Assessee

had reversed ITC amounting to Rs.7,01,82,060/- on such supplies by treating

the same as exempt supplies.

The Assessee preferred an appeal before the Appellate Authority under

Section 107 (1) of the CGST Act challenging the order in question passed by the

Adjudicating Authority. The Appellate Authority by its order dated 5th

February, 2021, allowed the aforesaid appeal of the assessee company and

consequently, allowed refund of Rs. 1,71,20,724/-. On the basis of the

aforesaid order of the Appellate authority, the Assessee filed application for

refund of cess in terms of Circular No. 111/30/2019-GST dated October 03,

2019 which according to the petitioner has not been considered by the CGST

authority concerned till date in spite of its repeated request.

On perusal of scheme of the Cess Act which is relevant for adjudication of

this case, legal position can be summarized as hereunder.

The parliament enacted the Cess Act to provide for compensation to the

States for the loss of revenue arising on account of implementation of the

Goods and Services Tax in pursuance of the provisions of the Constitution (One

Hundred and First Amendment) Act, 2016.

Section 2 (1)(c) of the Cess Act defines "Cess" to mean the goods and

services tax compensation cess levied under Section 8 of the Cess Act.

Section 2 (1)(d) of the Cess Act defines "compensation" to mean an amount,

in the form of goods and services tax compensation, as determined under

Section 7 of the Cess Act.

Section 4 of the Cess Act provides that for the purpose of calculating the

compensation amount payable in any financial year during the transition

period, the financial year ending 31st March, 2016, would be taken as the base

year.

Taxes, duties and levies like VAT, Purchase Tax, CST, Luxury Tax,

Entertainment Tax, Cess imposed by the State Government on the sale and

purchase of MS, HSD, Natural Gas, ATF etc. and other levies under Entries 54,

55, 62 and 66 of List II of Schedule VII to the Constitution were subsumed in

GST (Section 5 - Base year revenue).

Section 7 of the Cess Act Provides for levy and collection of Cess. The

Council constituted under Article 279-A of the Constitution has been vested

with the authority to make recommendations for levy and collection of cess.

From legislative scheme of the Cess Act it appears that the cess is an impost

to counterbalance the loss of revenue of the States on account of subsumption

of various taxes commencement of the GST regime. Hence, cess is a levy which

partakes the character of all the levies, which now are subsumed in GST.

Cess is akin to the components of GST, which is a constitutionally approved

amalgam of State taxes, which existed prior to the commencement of the GST

regime. The goods and services Tax Compensation Cess Rules, 2017 were also

framed and made effective from 1st July, 2017 wherein the Central Goods and

Services Tax Rules, 2017 were adapted. Having regard to the conscious use of

the expression "mutatis mutandis" in Section 11 of the Cess Act all the

provisions of CGST and IGST Acts would be squarely applicable to the levy,

collection and refund of the Cess Act. The words tax and cess for the purpose

of the Act would have to be used interchangeably.

Domestic supply of finished goods which are not liable to Compensation

Cess are to be reckoned as exempted supplies for the purpose of calculation of

refund in terms of Rule 89 (4) of the CGST Rules.

Section 2 (47) of the CGST Act defines "exempt supply" as supply of any

goods or services or both which attracts nil rate of tax or which may be wholly

exempt from tax under Section 11, or under Section 6 of the Integrated Goods

and Services Tax Act, 2017 and includes non-taxable supply. Thus, finished

goods supplied by the Assessee domestically which attract nil rate of Cess in

term of Sl. No. 56 of the said Notification should be construed as exempt

supplies and is therefore required to be excluded from adjusted total turnover

for the purpose of computation of refund of ITC of Cess in terms of Rule 89 (4)

of the CGST Rules.

The term "mutatis mutandis" has been discussed by the Hon'ble Supreme

Court in several cases as under:

a) Rajasthan State Industrial Development and Investment Corporation and

Another Vs. Diamond & Gem Development Corporation Ltd. & Another

[(2013) 5 SCC 470] wherein it has been held at Para 18 that the phrase

mutatis mutandis implies that provision contained in other part of the

statute or other statute would have application as it is with certain

changes in points of details.

b) Paresh Chandra Chatterjee Vs. State of Assam & Ors. [AIR 1962 SC 167]

wherein it has been observed that the expression mutatis mutandis

means 'with due alteration of details'.

Applying the ratio of the aforesaid judgments, it would be clear that goods

which are subject to nil rate of cess would be construed as exempt supplies for

purposes of the formula prescribed Rule 89 (4) of the CGST Rules and

therefore, deserves to be excluded from the calculation of adjusted total

turnover.

Considering the facts and circumstances of the case as appears from record

and impugned elaborate order of the Appellate authority, submission of the

parties, relevant provisions of law and the discussion made above I am not

inclined to interfere with the impugned order dated 5th February, 2021, for the

reason that in my considered view Appellate authority while passing the

impugned order has neither committed any procedural irregularity nor any

jurisdictional error nor any violation of principles of natural justice and the

impugned order is based on cogent reasons and is speaking one and so far as

findings of fact is concerned, in exercise of constitutional writ jurisdiction

under Article 226 of the Constitution, this Writ Court is not inclined to act as

an Appellate authority and differ with the same and substitute the said

findings of the Appellate authority. Accordingly the writ petition being WPA No.

17567 of 2021 filed by the CGST authority against impugned order of the

Appellate authority dated 5th February, 2021 is dismissed and consequently

Writ Petition being WPA No. 12676 of 2021 filed by the assessee company is

disposed of by allowing the same in view of the reasons and discussions made

above. In my considered view action of withholding of the petitioner/assessee's

claim of refund in question by the respondent CGST authority and not

refunding the same to the petitioner in spite of the order of the Appellate

authority dated 5th February, 2021, holding such claim in favour of the

assessee company/petitioner, is arbitrary and unjustified and accordingly

respondent CGST authorities concerned are directed to refund the amount as

per the aforesaid order of the Appellate authority dated 5th February, 2021,

along with applicable interest till the date of such payment, within eight weeks

from the date of communication of this order. No order as to costs.

Urgent certified photocopy of this judgment, if applied for, be supplied to the

parties upon compliance with all requisite formalities.

(MD. NIZAMUDDIN, J.)