(PER : HONOURABLE MR. JUSTICE PRANAV TRIVEDI)
common order. The facts of Special Civil Application
No. 20038 of 2022 are taken as lead matter.
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"A. Your Lordships may be pleased to declare
that paragraph no. 5 of Circular No. 45/19/2018-
GST dated 30.05.2018 as well as paragraph no.
18.11.2019 being contrary to Sec. 11 of the
Goods and Services Tax (Compensation to States)
Act, 2017 is wholly without jurisdiction,
manifestly arbitrary and violating Article 14 of
the Constitution of India,
B. Your Lordships may be pleased to issue a writ
of mandamus or a writ in the nature of
mandamus or any other writ, order or direction
quashing and setting aside (a) paragraph 5 of
Circular No. 45/19/2018-GST dtd. 30/05/2018, (b)
paragraph no. 42 of Circular No. 125/44/2019-
GST dated 18.11.2019 (c) Show-cause Notice
annexed at Annexure D above, (d) Order in Form
RFD-06 dtd. 08/04/2021 rejecting refund claim
(Annexure E hereinabove) and (e) Order dtd.
19/05/2022 (Annexure F hereinabove) as being
wholly without jurisdiction, arbitrary and illegal,
C. Your Lordships may be pleased to issue a writ
of mandamus or a writ in the nature of
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mandamus or any other writ, order or direction
quashing and setting aside (a) Show-cause
Notice annexed at Annexure D above, (b) Order
in Form RFD-06 dtd. 08/04/2021 rejecting refund
claim (Annexure E hereinabove) and (c) Order
dtd. 19/05/2022 (Annexure F hereinabove) as
being wholly contrary to the provisions of the
law,"
3 The facts culminating into filing of the present
writ petitions are as under:
3.1 The petitioner is a public limited company,
engaged in manufacture and sale of various chemical
products. The petitoner is indulged in activity of
supply of the products to Special Economic Zone
Units as well as for exports outside India. The
petitioner is registered under the provisions of
Central Goods & Services Tax Act, 2017 (hereinafter
referred to as 'the CGST Act' for short) as well as
under the provisions of Integrated Goods & Services
Tax Act, 2017 (hereinafter referred to as 'the IGST
Act' for short).
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3.2 It is the case of the petitioner that in order to
manufacture the finish product for exports, there is a
requirement of power in form of electricity. To satisfy
such requirement, petitioner purchased coal from the
market and generated its own captive power via
captive power plant. Purchase of coal led to levy of
CESS on the supply of coal. Vendors supplying coal to
the petitioner charged levy and collected CESS from
the petitioner.
3.3 It is the case of the petitioner that the levy of
CESS resulted into availment of Input Tax Credit on
the inward supplies of coal. It is the case of the
petitioner that the manufacturing of the chemical
products led to zero-rated supply with payment of
IGST, but without payment of CESS. In view of the
same, for the Financial Year 2019-20 the petitioner
availed CESS credit amounting to Rs.13,46,38,852/-
on inward supplies of coal. Accordingly, a refund
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application under Sec.11 of the Goods & Service Tax
(Compensation to States) Act, 2017, (hereinafter
referred to as "the CESS Act" for short) read with
Sec.16(3) of the IGST Act, 2017 as well as Sec.54(3)
of the IGST Act read with Rule 89(4) of the CGST
Rule in Form RFD-01 came to be filed by the
petitioner seeking refund of cumulative cess
amounting to Rs.3,39,02,063/-. It was the case of the
petitioner that such an amount was in proportion to
the zero-rated supply made with payment of IGST but
without payment of CESS.
3.4 Pursuant to the refund application, the Office of
the Assistant Commissioner, Central Goods &
Services Tax, Central Excise Division-VIII (Valsad)
(hereinafter referred to as 'the respondent' for short),
issued a show-cause notice in Form RFD-08 seeking
to reject the refund claim on the ground that refund
of cumulative cess credit group claim was available
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only in respect of zero-rated supplies made without
payment of IGST.
3.5 The respondent, further clarified that since the
zero-rated supply done by the petitioner have been
made with payment of IGST, the refund of cumulative
cess credit shall not be admissible and cannot be
permitted. Against the show-cause notice dated
25.02.2021, the petitioner responded by way of filing
reply. The respondent, by way of an order dated
08.04.2021 in Form RFD-06, rejected the refund
claim of the petitioner. Being aggrieved by the order
dated 08.04.2021 rejecting the refund claim, the
petitioner preferred an appeal under the provisions of
Sec.107(1) of the CGST Act. The appeal came to be
rejected vide order dated 19.05.2022 which has
culminated into filing of the present writ petitions.
The Order in Appeal as well as the Order-in-Original
are subject matter of challenge in the present writ
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petitions.
4 Mr.Abhay Desai, learned advocate for the
petitioner, relying on secs. 9 and 11 of the Cess Act,
submitted that the said sections seeks to apply the
provisions of the the GST Act, including the GST
Rules mutatis mutandis in relation to the levy and
collection of the cess as well as claim of input tax
credits of such cess and refunds thereof.
4.1 Mr.Desai, further submitted that, the provisions
related to the availment of the tax credits contained
u/s 16 of the CGST Act, 2017 as well as provisions
reltated to the refunds of the accumulated credits
contained u/s 16 of the IGST Act, 2017 read with
Sec.54 of the CGST Act, 2017 as well as Rule 89 of
the CGST Rules, 2017, shall apply mutatis mutandis
to the claiming of the tax credits of the cess as well as
claiming of the refunds of the accumulated credits of
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the said cess.
4.2 Mr.Desai, would further submit that Sec.16(1) of
the CGST Act, 2017 provides for the entitlement of
the tax credit in respect of all the inward supplies
used or intended to be used in the course of
furtherance of business. He further submitted that
the aforesaid provisions applied in the context of the
Cess Act by virtue of Sec.11 of the said Act shall
entail that the taxpayer is entitled to the credit of the
cess charged on inward supplies used in the course of
furtherance of business and the petitioner, therefore,
is undisputedly entitled to the credit of the cess paid
on the inward supplies of the coal since the same is
used by the petitioner in the course of manufacture
and sale of finished products.
4.3 It was further submitted by learned advocate
Mr.Abhay Desai that the issue is now no more res
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integra in view of the decision of this Court in the
case of Patson Papers Pvt Ltd vs. Union of India.,
rendered in Special Civil Application No. 26250 of
2022.
5 Per contra, learned advocate Ms.Hetvi Sancheti
for the respondent, conceded to the fact that the issue
is now no more res integra pursuant to the decision of
this Court in Patson Papers (supra) and therefore,
appropriate orders may be passed.
6 Having heard the learned advocates appearing
for the respective parties and having perused the
material on record, it is not in dispute that this
Hon'ble Court has categorically 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
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such cases can claim for purchase of coal used for
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.
6.1 This Hon'ble court in paras 6,7,8,18,19,20 and
21 of the said decision has held as under:
"6 The petitioner is a public limited company
engaged in the business of manufacture and sale
of dyes, dye intermediate, chemicals etc. The
petitioner purchased coal for use in its
manufacturing process. The petitioner also paid
Cess under the Cess Act in addition to the GST
for purchase of the coal. It is the case of the
petitioner that while coal purchased by the
petitioner is liable to Cess, however, the finished
goods manufactured by the petitioners are not
liable to GST compensation Cess under the Cess
Act. Therefore, when the finished goods
manufactured by the petitioner are exported
outside the country on payment of IGST as
permitted by Section 16 of the IGST Act, the
petitioner is entitled to the refund of such IGST,
however, the petitioner is not required to pay
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Cess at the time of export of the goods and as the
exports being zero rated supply and unutilized
input tax credit being fully attributable to exports
of the petitioner, the petitioner claimed refund of
unutilized input tax credit comprising of the GST
compensation Cess which was initially granted to
the petitioner by the respondent-authorities
7. However, subsequently, the show cause
notices were issued proposing to reject the
refund applications on the basis of the Circular
No. 125/44/2019 dated 18/11/2019 read with
para-5 of Circular No 45/19/2018 dated
30/05/2018 wherein it is stated that the refund of
unutilized Input Tax Credit qua Cess will be
available only if the export is without payment of
tax and as the petitioner has paid IGST on the
goods which were exported, the refund of Cess
as well as the relatable to the inputs utilized for
production of the goods which are exported was
held to be inadmissible. The petitioner in the
reply clarified that the petitioner has not paid
any GST compensation Cess on the goods
exported and as such goods being zero rated
supply, the petitioner is entitled to the refund of
Cess as the provisions of the Cess Act shall apply
mutatis mutandis as the same would be
applicable in case of the GST. Respondent no 3
also issued notices proposing to withdraw the
refund of Cess already granted to the petitioner
8. Being aggrieved, the petitioner has challenged
such show cause notice proposing to recover the
refund already sanctioned as well as rejecting
the refund applications filed by the petitioners
for refund of the Cess paid while purchasing the
coal which was utilized for manufacture of the
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goods which are exported by the petitioner.
XXX XXX XXX
18. Having heard the learned advocates
appearing for both the parties and considering
the facts and material available on the record,
following undisputed facts emerge.
(1) The petitioners have purchased the coal on
payment of Cess and as such the petitioner is
entitled to the Input Tax Credit on such Cess
amount. The petitioner has utilized the coal
purchased for manufacture of the goods which
are exported.
(2) The petitioner paid the IGST at the time of
export of the goods which was refunded by the
Custom Authorities as per the provision of
Section 54(3) read with Section 16 of the IGST
Act being a zero rated supply.
(3) The petitioner therefore filed the refund claim
application to claim the Input Tax Credit of the
Cess amount which was paid by the petitioner
while purchasing the coal and as such coal was
utilized for manufacture of exported goods
19. In view of the above, it would be germane to
refer to the relevant provisions of the CGST Act
and the IGST Act as well as the Cess Act.
19.1. Section 54(3) of the CGST Act reads as
under
"Section 54 - Refund of tax-
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(1).....
(2).....
(3) Subject to the provisions of sub-section (10),
a registered person may claim refund of any
unutilised input tax credit at the end of any tax
period:
PROVIDED that no refund of unutilised input tax
credit shall be allowed in cases other than
(i) zero rated supplies made without payment of
tax;
(ii) where the credit has accumulated on account
of rate of tax on inputs being higher than the rate
of tax on output supplies (other than nil rated or
fully exempt supplies), except supplies of goods
or services or both as may be notified by the
Government on the recommendations of the
Council:
PROVIDED also that no refund of input tax credit
shall be allowed, if the supplier of goods or
services or both avails of drawback in respect of
central tax or claims refund of the integrated tax
paid on such supplies."
19.2. Section 16 of the IGST Act reads as under
"Section 16. Zero rated supply.-
(1) "zero rated supply means any of the following
supplies of goods or services or both, namely:-
(a) export of goods or services or both; or
(b) supply of goods or services or both [for
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authorised operations) to a Special Economic
Zone developer or a Special Economic Zone unit.
(2) Subject to the provisions of sub-section (5) of
section 17 of the Central Goods and Services Tax
Act, credit of input tax may be availed for making
zero-rated supplies, notwithstanding that such
supply may be an exempt supply.
[(3) A registered person making zero rated
supply shall be eligible to claim refund of
unutilised input tax credit on supply of goods or
services or both, without payment of integrated
tax, under bond or Letter of Undertaking, in
accordance with the provisions of section 54 of
the Central Goods and Services Tax Act or the
rules made thereunder, subject to such
conditions, safeguards and procedure as may be
prescribed
PROVIDED that the registered person making
zero rated supply of goods shall, in case of non-
realisation of sale proceeds, be liable to deposit
the refund so received under this sub-section
along with the applicable interest under section
50 of the Central Goods and Services Tax Act
within thirty days after the expiry of the time
limit prescribed under the Foreign Exchange
Management Act, 1999 (42 of 1999) for receipt
of foreign exchange remittances, in such manner
as may be prescribed
(4) The Government may, on the
recommendation of the Council, and subject to
such conditions. safeguards and procedures, by
notification, specify
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(1) a class of persons who may make zero rated
supply on payment of integrated tax and claim
refund of the tax so paid [in accordance with the
provisions of section 54 of the Central Goods and
Services Tax Act or the rules made thereunder].
(ii) a class of goods or services (or both, on zero
rated supply of which, the supplier may pay
integrated tax and claim the refund of tax so paid
in accordance with the provisions of section 54 of
the Central Goods and Services Tax Act or the
rules made thereunder]]
[(5) Notwithstanding anything contained in sub
sections (3) and (4), no refund of unutilised input
tax credit on account of zero rated supply of
goods or of integrated tax paid on account of
zero rated supply of goods shall be allowed
where such zero rated supply of goods are
subjected to export duty]
19.3. Section 11(2) of the Cess Act reads as
under
"Section 11 Other provisions relating to cess
(2) The provisions of the Integrated Goods and
Services Tax Act, and the rules made thereunder.
including those relating to assessment, input tax
credit, non-levy, short-levy, interest, appeals,
offences and penalties, shall, mutatis mutandıs,
apply in relation to the levy and collection of the
cess leviable under section 8 on the inter-State
supply of goods and services, as they apply in
relation to the levy and collection of integrated
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tax on such inter-State supplies under the said
Act or the rules made thereunder
PROVIDED that the input tax credit in respect of
cess on supply of goods and services leviable
under section 8, shall be utilised only towards
payment of said cess on supply of goods and
services leviable under the said section
20. The relevant paragraphs of the circulars
relied upon by the respondents also reads as
under
20.1. Para-5 of Circular No.45/19/2018 dated
30/05/2018 reads as under
"5. Refund of unutilized input tax credit of
compensation cess availed on inputs in cases
where the final product is not subject to the levy
of compensation cess:
51 Doubts have been raised whether an exporter
iS eligible to claim refund of unutilized input tax
credit of compensation cess paid on inputs,
where the final product is not leviable to
compensation cess. For instance, cess is levied
on coal, which is an input for the manufacture of
aluminum products, whereas cess is not levied on
aluminum products
5. 2 In this regard, section 16(2) of the
Integrated Goods and Services Tax Act, 2017
(IGST Act for short) 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 supplies Further, as per section 8 of
the Goods and Services Tax (Compensation to
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States) Act, 2017, (hereafter referred to as the
Cess Act), all goods and services specified in the
Schedule to the Cess Act are leviable to cess
under the Cess Act, and vide section 11 (2) of the
Cess Act, section 16 of the IGST Act is mutatis
mutandis made applicable to inter-State supplies
of all such goods and services. Thus, it implies
that all supplies of such goods and services are
zero rated under the Cess Act. Moreover, as
section 17(5) of the CGST Act does not restrict
the availment of input tax credit of compensation
cess on coal, it is clarified that a registered
person making zero rated supply of aluminum
products under bond or LUT may claim refund of
unutilized credit including that of compensation
cess paid on coal.
5.3 Such registered persons may also make zero-
rated supply of aluminum 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.
Accordingly, they cannot claim refund of
compensation cess in case of zero-rated supply
on payment of integrated tax."
20.2. Para-42 of Circular No.125/44/2019 dated
18/11/2019
reads as under:
"Guidelines for claims of refund of Compensation
Cess
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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 manufacture of aluminium products.
whereas cess is not levied on aluminium
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 supplies. 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 Compensation
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 registered person making zero rated supply of
aluminium products under bond or LUT may
claim ref refund of unutilized credit including
that of compensation cess paid on coal. Such
registered 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."
21. On a conjoint reading of above provisions of
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the GST Act, IGST ACT and the GST
(Compensation to State) Act, 2017 (for short 'the
Cess Act') as well as para-5 of the Circular
No.45/19/2018 and para-42 of Circular No
125/44/2019, the respondent authority appears
to have misinterpreted the circulars while
rejecting the refund claim applications filed by
the petitioner for refund of input tax credit of
cess paid by the petitioner for purchase of coal
utilized for manufacture of the goods which are
exported. As per the provision of Section 54(3) of
the GST Act read with Section 16(3) of the IGST
Act and Section 11(2) of the Cess Act, the
petitioner can claim the refund of unutilized
input tax credit for purchase of coal used for
manufacture of goods exported being zero rated
supply The petitioner has paid 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 compensation cess
Therefore, while applying the above provisions,
admittedly the compensation cess was not paid
at the time of export of goods by the petitioner,
the petitioner, therefore, is entitled to refund of
input tax credit of the compensation cess paid on
purchase of the coal utilized for the purpose of
manufacture of the goods which are exported as
zero rated supply on payment of IGST by the
petitioner. Therefore, reliance placed by the
respondent on para-42 of the Circular No.
125/44/2019 dated 18/11/2019 is misplaced
because the said circular was issued clarifying
the eligibility to claim refund of unutilized input
tax credit of compensation cess paid on input,
where the zero rated final product is not leviable
with compensation cess. However, the circular
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refers to the provision of Section 16(2) of the
IGST Act that the registered person making zero
rated supply of aluminum products under bond
or may claim refund of unutilized credit including
that of compensation cess paid on coal. The
circular further clarifies that when the registered
person make a zero rated supply of product on
payment of integrated tax, 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, as the said
proviso allows the utilization of the input tax
credit of cess, only for the payment of cess on the
outward supplies. However, when the petitioner
has paid the IGST under Section 16(3) of the
IGST Act on the zero rated supply and refund is
claimed by the payment of such IGST, the
petitioner admittedly would not be able to utilize
input tax credit of cess as cess is not payable on
the zero rated supply Therefore, proviso to
Section 11(2) of the Act would not be applicable
in the facts of the case and the petitioner would
be entitled to refund of the unutilized input tax
credit on cess paid on purchase of coal utilized
for the purpose of manufacture of goods which
are exported."
7 The facts and law enumerated in the case of
Patson Papers (supra), would be squarely
applicable to the facts of the present case. In Patson
Papers(supra), the company was engaged in the
business of manufacturing of dyes and there was
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purchased of coal for the manufacturing process. The
Company was involved in production of finished
goods, which was not liable to GST. Finished goods
were exported being zero rated supply. Therefore, the
petitioner in the case of Patson Papers(supra), had
applied for refund of compensation cess on purchase
of coal for manufacturing of the finished goods.
7.1 In the instant case, the Company is also engaged
in 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 open market and generated its own captive
power via captive power plant. Therefore, cess charge
invoice supplies were demanded by way of refund
case, the same was rejected by relying on Circular
No. 45/19/2018-GST dated 30.05.2018 as well as
Circular No. 125/44/2019-GST dated 18.11.2019.
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7.2 Therefore, the facts of the present case and that
being in the case of Patson Papers(supra), are
absolutely identical and the law envisaged therein
would be squarely applicable to the facts of the
present case.
8 In view of the decision and law laid down by this
Court in the case of Patson Papers (supra), the
present petitions stands allowed. The respondent is
directed to process refund application of the
petitioner to sanction the refund of the CESS amount
claimed on unutilized tax credit. The impugned orders
in both writ petitions passed by the respondent are
quashed and set aside. Rule is made absolute to the
aforesaid extent.
(BHARGAV D. KARIA, J)
(PRANAV TRIVEDI,J)
BIMAL
