Refund of unutilized ITC compensation cess

A useful analysis of Circular No. 45/19/2018-GST regarding the Refund of unutilized ITC compensation cess. ITC availed on inputs in cases where the final product is not subject to the levy of compensation cess.

Point No. 5.1

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.

Point No.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 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.

Let’s Examine above two Para of said circular where clarify even final product on which Cess is not payable , and availing ITC of compensation Cess on INPUT, ITC of compensation cess can be refunded on Export made under LUT or Under Bond.

As mention in above para 5.2 & Section 11 of the GST Compensation Cess Act (“Cess Act”) :

provisions of the CGST Act & IGST Act and the rules made thereunder, including those relating to assessment, input tax credit, non-levy, short-levy, interest, appeals, offences and penalties, shall, as far as may be, mutatis mutandis, apply, in relation to the levy and collection of the cess leviable under section 8 on the intra-State and inter-State supply of goods and services, respectively as they apply in relation to the levy and collection of central tax and integrated tax on such intra-State and inter-state supplies respectively under the said Acts or the rules made thereunder.

Also provided that 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. – Ref. (proviso to Sec 11 Cess Act)

Input tax Definition :

Clause (g) to Section 2 of the Compensation to States Act

# cess charged on any supply of goods or services or both made to him;

# cess charged on import of goods and includes the cess payable on reverse charge basis .

So here two type of ITC (that is of Cess) can be Availed

Now the question is what to do with ITC of Cess. As proviso to Section 11 of cess Act said that ITC of Cess can only be utilized for payment of output liability of Cess.

Here there is no bar in availing ITC of cess, but the bar on the utilization of such ITC. As it can be used for payment of output liability of cess.

Section 9(1) of the Cess Act, says the refund of the compensation cess can be claimed only by persons making taxable supplies under the provisions of the Cess Act.

Definition of taxable Supply:

Supply of goods or services or both which is chargeable to the cess under this Act.

Number 01/2017-Compensation Cess (Rate) dated 28.06.2017: provide the Different rate of tax of Cess on the Different product. Where Serial No. 56 of NN 01/ 2017 all goods other than mentioned above 1 to 55 serial No. have “NIL” Rate.

Means All goods are Taxable as per Compensation Act. Some of the products have Specified Rate or other products have “NIL” Rate.

Now, conclusion can be Drawn from above Fact & para 5.1 & 5.2 Even your Final product on which Cess is not payable, and Have ITC on Cess, such ITC of Cess can be claimed as refunded on Export Made under LUT or under Bond.

CA Shailesh Chhatbar