Compensation Cess on Coal Clarification: Impact on Coal Rejects Supply

The ruling clarified that Compensation Cess is leviable on the total quantity of raw coal raised/mined. Coal rejects supplied by a Coal Washery will attract NIL rate of Compensation Cess only if the Compensation Cess on the total quantity of raw coal mined is discharged and no input tax credit of the Compensation Cess is availed by any person. The authority did not provide a ruling on the subsequent supply of coal rejects due to the lack of detailed information.

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Issues Involved:
1. Levy of Compensation Cess on total quantity of raw coal or washed coal.
2. Exemption from levy of Compensation Cess on coal rejects supplied by Coal Washery.
3. Subsequent supply (or sale) of coal rejects and its attraction of Compensation Cess.

Detailed Analysis:

Issue 1: Levy of Compensation Cess on Total Quantity of Raw Coal or Washed Coal
- The ruling clarified that Compensation Cess is leviable on the total quantity of raw coal raised/mined and not only on the quantity of washed coal. This is based on Notification No. 01/2017-compensation cess (Rate) dated 28.06.2017, which prescribes Rs. 400 per tonne as Compensation Cess under Chapter Heading/Sub-heading 2701. The total quantity of raw coal mined is subject to Compensation Cess, ensuring that the entire quantum of coal mined is taxed upfront.

Issue 2: Exemption from Levy of Compensation Cess on Coal Rejects Supplied by Coal Washery
- The ruling referred to Notification No. 02/2018-Compensation Cess (Rate) dated 26/07/2018, which inserted Entry 41A, prescribing NIL rate of Compensation Cess on coal rejects supplied by a coal washery, provided that:
1. The coal rejects arise out of coal on which Compensation Cess has been paid.
2. No input tax credit of the Compensation Cess paid on coal is availed by any person.
- The ruling emphasized that for the exemption to apply, Compensation Cess must be paid on the entire quantity of raw coal mined. The coal rejects supplied by the Applicant should arise out of the raw coal mined, and the Compensation Cess on the total quantity of raw coal should be discharged. Additionally, no input tax credit on the Compensation Cess paid should be availed by any person.

Issue 3: Subsequent Supply (or Sale) of Coal Rejects and Its Attraction of Compensation Cess
- The ruling stated that due to the absence of specific details regarding the contract/agreement and transaction details related to the proposed subsequent sale of coal rejects downstream, the authority could not pass any ruling on this matter.

Conclusion:
- The ruling concluded that Compensation Cess is leviable on the total quantity of raw coal raised/mined.
- Coal rejects supplied by a Coal Washery will attract NIL rate of Compensation Cess only if the Compensation Cess on the total quantity of raw coal mined is discharged and no input tax credit of the Compensation Cess is availed by any person.
- The authority did not provide a ruling on the subsequent supply of coal rejects due to the lack of detailed information.

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