ITC reversal on compensation cess needed ?

[BIJO SCARIA]

When the government removes compensation cess on certain goods, I have stock lying as on the date of the rate change on which I had already paid compensation cess. I had also fully utilised the ITC of such cess before the change.

In this case, am I required to reverse the ITC of compensation cess which I had availed and already utilised?”

[Shilpi Jain]

If your output now becomes cess exempt then ITC of cess is required to be paid back in your case on the capital goods, inputs including the inputs in WIP and FG as per Section 18(4) of the CGST Act (which is also applicable for cess).

However, if you are exporting your goods, no need to reverse/payback cess credit.

[BIJO SCARIA]

But section 18(4) says ITC reversal required when goods or service is wholly exempted. So, this case tax is not wholly exempted.

[Sadanand Bulbule]

Once ITC of compensation cess is validly availed under Section 16 of the CGST Act and utilised against output liability, there is no requirement to reverse the ITC merely because the Government has withdrawn compensation cess prospectively on those goods.

The withdrawal of cess applies from the date notified, and it does not retrospectively impact the eligibility of ITC already taken on stock purchased earlier.

Reversal obligation arises only if ITC is wrongly taken, or when goods/services are used for exempt supplies or non-business purposes [Section 17 CGST Act]. Since the stock was purchased when cess was leviable, ITC was correctly availed.

 Therefore, in GSTR-3B (GST-02), he should continue as usual – no reversal entry required.  

Conclusion: You are not required to reverse the ITC of compensation cess already availed and utilised just because the cess has been removed later.

[BIJO SCARIA]

But, ITC can be availed once the conditions under Section 16(2) are fulfilled, as the law does not restrict it to a prospective basis. Further, as per Section 18(4), if taxable supplies subsequently become exempt, the ITC relating to the stock is required to be reversed. 

[KASTURI SETHI]

2022 (3) TMI 1254 - CESTAT NEW DELHI NU VISTA LTD. Versus COMMISSIONER (APPEALS), CGST, C. EX., RAIPUR

 

[K.lakshmipati rao]

Q. When the government removes compensation cess on certain goods, I have stock lying as on the date of the rate change on which I had already paid compensation cess. I had also fully utilized the ITC of such cess before the change.

Ans. Since fully utilized the ITC of such cess before the change, there would be no issue or reversal of cess.

However, if there is any accumulated CESS in ECL, for which no REFUND is available as on date. FADA has given representation to Finance Ministry and Prime Minister, but decision is still awaited.

AI Summary

Input tax credit reversal may be required when compensation cess removal makes supplies exempt, subject to export exception.
The dispute concerns whether reversal of input tax credit on compensation cess is required when cess is withdrawn. One position interprets the reversal mechanism for supplies becoming exempt to require payback of ITC on capital goods, inputs, WIP and finished goods held at the change, with exports excepted. The counterposition holds that ITC validly availed and already utilised against output liability when cess was leviable need not be reversed because the withdrawal is prospective. Fully utilised ITC before the change poses no reversal issue; accumulated unrefunded cess balances in the electronic credit ledger remain administratively unresolved.