REFUND OF COMPENSATION CESS IN INVERTED DUTY STRUCTURE

[Asked by Guest]

Can one claim refund of unutilised input tax credit of compensation cess paid on coal purchase, in application for inverted duty structure along with CGST and SGST refund.

[DR.MARIAPPAN GOVINDARAJAN]

In my view it can be claimed. Views of experts are solicited.

[Yash Jain]

Sir,

It's a typical issue, but prima facie following is the status on refund on compensation cess,

1. If your products are sold by way of charging tax, then irrespective of rate charged on final products (whether or not final product is subject to cess in addition to Cgst/sgst or igst) , then compensation cess is "not Refundable", as input of cess can be utilized " Only" against payment of output cess.

2. For exports - If goods are exported by way of charging "GST", (IGST paid on exports (reversal of input and then claiming refund of igst) , in such situation also refund of compensation cess is not available (Refer circular No. 45/13/2018 dated 30.05.2018) as input of cess can be utilized only to pay cess.

3. For exports - without payment of IGST, zero rated - in this case, yes. Only in this case we can claim refund, as in zero rated exports, it's is presumed that as taxes are not to be exported, compensation cess accumulated on these products will be refunded.

4. Hence we have to plan for charging of GST on exports, by keeping in view the available input compensation cess balances, if you have significant balance then plan for zero rated export and take refund of compensation cess, as this is the only possibility.

Rgds

[DR.MARIAPPAN GOVINDARAJAN]

Thanks Sri Yash for your beautiful reply.

[Yash Jain]

Sir,

Though refund clarification as being issued on 30.05.2018, does give some clarity, on refund of cess, and compensation cess being levied to compensate states (hence not Refundable), but we can approach advance ruling authority to determine whether (by chance, if any) we can get refund. It will cost only R's. 10000/-, but will provide, a definite clarity.

Rgds

[DR.MARIAPPAN GOVINDARAJAN]

You are correct.

[Mr Rao]

Dear querist,

I agree with the experts. As of now the provisions are clear that only input cess can be utilised for payment of output cess. Hence, refund is not possible.

[Yash Jain]

Dear Sir,

The Provision with regard to refund for compensation cess is very much clear that " Refund for Compensation cess on coal can be availed" if and only if the Goods as being manufactured from Coal are being exported under "Zero rate exports under Bond/LUT".

In rest all the cases (Even for Exempt Supply) Refund for compensation cess will not be available.

However it is always advisable to approach the AAR before refund : Reason: It will safeguard you from any adverse remarks from the Department (U/s Sec 74 - In case they interpretate anything otherwise as being mentioned in circular.

Hence, in case you have compensation cess, the do the following,

1. Expense the said in Cost of Materials.
2. Also show the same in GSTR 3B (Though Expensed but do show in 3B)
3. When you receive refund then offer the same in tax.
4. It will be a “Cash Positive” situation. (In comparision to step 5)
5. Do not choose option of Export by way of Payment of “IGST” as it will not entitle for refund. You can use IGST ITC (SGST/CGST) for future ITC, but do not exercise this option (i.e Charging IGST and exporting) if you have compensation cess and export “under LUT Only”

1. Can we take advance rulling for refund

2. As per circular issued, where refund of cess is allowed for zero rated supply I have one thing to say that, If CESS can be input tax credit for zero rated supply then why not for Inverted Structure. Ultimately refund is allowed of unutilised input tax credit and the NET ITC defnination is simmilar for bith inverted and zero rated supply refund (only service not allowed in inverted structure)

[Yash Jain]

Sir,

For Advance Ruling - Well Yes we can go for advance ruling, but If the Circular Allows one to take refund for Cess then why to go for such ruling. It will come after 90 days and that too chances of it being dismissed is high as we already have circular/clarification. Advance ruling cannot override the GST Law.

Cess for Inverted duty structure : We pay ₹ 400/- PMT as cess on coal. Say the Coal is Trading at ₹ 8500 to 9000 (PMT) (This being indigenous procured coal) (Say 400/ 8500 = 5% Say) and ₹ 11500/- (400/11500 = 3% Say). Your final product must be taxable at more than 5%, so it will be impossible to prove that accumulation is on account of inverted duty structure. As we pay advoleram rate, it is not an inverted duty structure as it does not have any output GST Tax.

Also another reason is that, “Input is cess is allowed only for payment of Liability” hence technically its accumulation can be used only to discharge the liability otherwise the same is to be written Off.

AI Summary

Compensation cess refund limited: available only for zero-rated exports under bond/LUT; not for inverted duty or IGST-paid exports.
Refund of unutilised compensation cess on inputs (e.g., coal) is not available where input cess can only be utilised against output cess; refunds are disallowed for exports where IGST is charged. Refund is permitted only for zero-rated exports effected under bond/LUT (no tax payment), and taxpayers should treat nonrefundable cess as a material cost, report it in GSTR-3B, and consider advance ruling only for clarity where circular guidance is inconclusive.