Coal rejects from washing classified under HSN 2701, taxable at 5% GST plus Rs. 400 compensation cess per tonne

The AAR Punjab ruled that coal rejects generated during coal washing are classifiable under HSN 2701 and taxable at 5% GST plus Rs. 400 per tonne compensation cess. The applicant is eligible for Input Tax Credit on GST and compensation cess for raw coal transferred to washery/job-worker, provided eligibility conditions under Section 16 of CGST Act are met and the ITC doesn't fall under restricted categories under Section 17. The admissible proportion of ITC must be determined using Rule 42 of CGST Rules, requiring reversal proportionate to exempt/taxable turnover ratio.

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Issues Involved:
1. Taxability of "coal rejects" under GST Act and Compensation Cess Act.
2. Eligibility of Input Tax Credit (ITC) of GST and Compensation Cess on raw coal.
3. Admissible proportion of Input Tax Credit.

Detailed Analysis:

1. Taxability of "coal rejects" under GST Act and Compensation Cess Act:

The primary issue was whether "coal rejects" are taxable under the GST Act and Compensation Cess Act. The ruling determined that "coal rejects" generated during the process of coal washing are classified under HSN 2701, which covers "Coal; briquettes, avoids and similar solid fuels manufactured from coal." As per Notification No. 01/2017-Central Tax (Rate) dated 28.06.2017, coal rejects attract 5% GST and Rs. 400 per tonne Compensation Cess. This classification was further supported by a press release dated 18-01-2018 from the Ministry of Finance, which recommended the same tax rates for coal rejects. Therefore, the ruling confirmed that coal rejects are taxable at 5% GST and Rs. 400 PMT Compensation Cess.

2. Eligibility of Input Tax Credit (ITC) of GST and Compensation Cess on raw coal:

The second issue addressed whether the applicant is eligible to avail ITC on GST and Compensation Cess paid on raw coal procured from its supplier and transferred to the washery/job worker for cleaning. According to Section 16 of the CGST Act, 2017, every registered person is entitled to take credit of input tax charged on supplies used in the course or furtherance of business, provided they meet specific conditions. Additionally, Section 19 of the CGST Act, 2017 allows the "principal" to avail ITC on inputs sent directly to the job worker's premises. Since the applicant met the eligibility conditions under Section 16 and the ITC did not fall under the blocked credits categories of Section 17, the ruling confirmed that the applicant is eligible to avail ITC of GST and Compensation Cess on raw coal transferred to the washery/job worker.

3. Admissible proportion of Input Tax Credit:

The third issue involved determining the admissible proportion of ITC. As per Section 17(2) of the CGST and PGST Acts, 2017, read with Rule 42 of the CGST and PGST Rules, 2017, ITC is available only to the extent it is used for taxable supplies. If goods or services are used partly for taxable supplies and partly for exempt supplies, ITC must be proportionately attributed to taxable supplies. The ruling emphasized that the applicant must follow the formula prescribed under Rule 42 for determining and reversing ITC in proportion to exempt and taxable turnover. The applicant's proposal to reverse ITC based on the quantity of clean coal and coal rejects was not accepted, as there was no provision for such a method under the current rules.

Ruling:

1. Taxability of "coal rejects": Yes, coal rejects are taxable under HSN 2701 at 5% GST and Rs. 400 PMT Compensation Cess.

2. Eligibility of ITC on raw coal: Yes, the applicant is eligible to avail ITC of GST and Compensation Cess on raw coal transferred to the washery/job worker, provided they meet the conditions under Section 16 of the CGST Act, 2017.

3. Admissible proportion of ITC: The applicant must follow the formula prescribed under Rule 42 of the CGST and PGST Rules, 2017, for determining and reversing ITC in proportion to exempt and taxable turnover.

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