Eligibility of input tax credit of CESS on Coal

[Kaustubh Karandikar]

XYZ (Manufacturer) receiving Coal where the supplier is charging CESS in the Tax Invoice. Can XYZ take input tax credit of the CESS charged in the invoice? If no, is there any specific provision under the law to deny the credit?

[KASTURI SETHI]

It is a compensation cess and ITC can be taken with the restriction that it can be used for payment of compensation cess only

[SHARAD ANADA]

If you are exporting goods without payment of dutry you can claim refund of coal cessc pl. refer circular 45 CGST dated 30.05.2018 .

para 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:

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.

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.

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.

[KASTURI SETHI]

Nicely explained by Sh.Sharad Anada Ji. I agree with his views. Thanks for providing legal force to my view.

[Kaustubh Karandikar]

Thanks Sharad ji for your apt reply and Sethi ji for your comments also.

AI Summary

Compensation cess input tax credit restricted to cess payment; refundable for zero-rated supplies under bond, not when integrated tax paid. Availment of input tax credit of compensation cess on coal is permitted but the credit may be utilised only for payment of compensation cess; it cannot be used for payment of integrated tax. Registered persons making zero-rated supplies under bond or LUT may claim refund of unutilized compensation cess credit when the final product is not subject to cess, whereas zero-rated supplies made on payment of integrated tax do not permit utilisation of cess credit for integrated tax nor refund of cess.