Refund of compensation cess u/r 96 when final product is not chargeable to cess

[Nikhil Virkar]

Dear sirs, ITC is claimed of compensation cess paid on eligible input used for the manufacturing of final product. Compensation cess levy is not applicable to the said final product. If we export the final product on payment of tax to claim the refund of GST u/r 96, how we can claim the refund of accumulated compensation cess attributable to export. Since cess is not levied on final product we cannot pay while filing refund u/r 96 thru shipping bill. Please guide

[KASTURI SETHI]

Read para no.5 of Circular no. 45/19/2018-GST dated 30.05.2018 and para nos.42 & 43 of Circular No.125/44/2019-GST dated 18.11.19.

[Nikhil Virkar]

Dear sir, Para 42 & 43 provided the clarification for export under LUT/Bond wherein last sentence is "Such registered persons may also make zero-rated supply of aluminium 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."  Whether this means, refund of cess wherein final product is not leviable to Cess if exported on payment of IGST, is required to be claimed under rule 89(4) of CGST Rules 2017 as an accumulated ITC of cess?  

[KASTURI SETHI]

Refund of compensation cess  is allowed even on payment of IGST on the goods exported where final product is not leviable to Compensation Cess.  Zero rated supply will remain zero-rated whether the goods are exported under Bond/LUT or on payment of IGST.

[KASTURI SETHI]

Corrigendum to my above post :

 Zero rated supply will remain zero-rated whether the goods are exported under Bond/LUT or on payment of IGST and,   thereafter, get refund of IGST paid.

[Nikhil Virkar]

Thank you sir ji.

[Shilpi Jain]

Where your final products are exempt from cess, you should export those goods without payment of tax under LUT and apply for refund of the accumulated cess credit for the tax periods for which refund is claimed.

If you do with payment of tax, getting refund of cess will not be possible though you can have that as credit in your credit ledger hoping to use it some day!

[Nikhil Virkar]

Dear Madam, utilisation of ITC of compensation cess is not possible since output is not levy to the cess. No issue to claim the refund of cess if filed under Rule 89(4) wherein specific provision is available to apply for the cess refund, whereas in terms of Rule 96 since filing of SB itself is considered as filing of refund of IGST on payment of tax the exporter cannot charge/pay cess in export tax invoice. Therefore, in my view if exporter opt for export on payment of tax, he does not have an option other than to file refund u/r 89(4) only for the cess amount for the relevant tax period under the shelter of master circular 125/44/2019. Else ITC cess attributable to export value would be cost to exporter if he opt for export on payment of tax wherein final product is not leviable to cess. This would be contradictory to refund provisions in my view. Need to litigate the issue if Dept reject the cess refund filed u/r 89(4) in case of export on payment of tax.

[KASTURI SETHI]

Dear Querist,

                     With reference to your above views, I am of the opinion that the issue is worth contesting and I am hopeful also.

AI Summary

Compensation cess refund when final product non leviable: seek refund via statutory cess refund route rather than shipping bill mechanism.
Where final goods are not leviable to compensation cess, accumulated cess credit attributable to exports may not be utilizable via the shipping bill route when exports are effected on payment of tax; exporters should instead pursue refund of accumulated cess credit through the dedicated statutory refund procedure for cess credits, while exports under LUT allow direct claim of cess refund. Circular guidance preserves zero-rated status for exports under either route but limits use of cess credit to payment of cess on outward supplies.