TaxTMI 
TaxTMI 
2026 (10) TMI 1364
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....101000110 APL/73/LCK/2026 AA090920091594U ZD091120004030H 6-Nov- 2020 15040 Jun-18 2 2026109101000120 APL/66/LCK/2026 AA091220013697D ZD0901210032171 5-Jan- 2021 11704 Mar-19 3 2026109101000126 APL/70/LCK/2026 AA090920142118A. ZD091120014455V 21-Nov- 2020 19463 Sep-18 4 2026109101000129 APL/69/LCK/2026 AA0909201357319 ZD091120014439P 21-Nov- 2020 10321 Apr-June- 18 5 2026109101000130 APL/68/LCK/2026 AA0910201488385 ZD091120017609L 24-Nov- 2020 13010 Dec-18 6 2026109101000131 APL/67/LCK/2026 AA0912200072881 ZD090121003168W 5-Jan- 2021 2446 Feb-19 Since the issue, factual circumstances, and grounds of appeal are identical across all six cases, and they involve the same appellant, this common order addresses all appeals. 1.2. The facts of the case are that M/s Pacific Leather Pvt. Ltd. is engaged in the manufacture and sale of leather products. During the manufacturing process, coal is used as fuel for operating boilers and generating the energy required for production. Compensation Cess is payable on the purchase of coal, whereas the finished....
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....he conditions prescribed under Section 54(3) of the CGST Act, 2017, were not properly appreciated by the First Appellate Authority. Accordingly, the Department has prayed for setting aside the impugned Order-in-Appeal and restoration of the original Refund Rejection Orders passed by the Proper Officer. 2. Questions of Law The following questions arise for consideration and determination in the present Second Appeal: 2.1. Whether the First Appellate Authority was justified in allowing the refund of accumulated Input Tax Credit of Compensation Cess paid on coal used in the manufacture of leather products, where the outward supplies were domestic supplies not liable to Compensation Cess. 2.2. Whether the admissibility of Input Tax Credit under Section 16 of the CGST Act, 2017, read with Section 11(2) of the Goods and Services Tax (Compensation to States) Act, 2017, automatically entitles a registered person to refund of such credit under Section 54(3) of the CGST Act. 2.3. Whether accumulation of Compensation Cess ITC on account of the absence of Compensation Cess liability on outward supplies can, by itself, be treated as an inverted tax structure qualifying for refund....
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.... fact that coal does not fall within the category of blocked credits under Section 17(5) may establish eligibility for availment of ITC, but it does not independently establish eligibility for refund under Section 54(3). 3.7. The Appellant has further submitted that the First Appellate Authority failed to appreciate the distinction between availment, utilisation and refund of Input Tax Credit. These are separate statutory concepts governed by different provisions and conditions. An amount may be legally available as ITC without necessarily becoming refundable in cash. 3.8. The Appellant has accordingly prayed that the impugned Order-in-Appeal dated 05.07.2021 be set aside and the original Refund Rejection Orders as mention in Table I above rejecting the disputed refund claims. 4. Submission of the Appellant 4.1. The learned Departmental Representative, appearing on behalf of the Appellant- Department, submitted that the impugned Order-in-Appeal is legally unsustainable as the First Appellate Authority allowed the refund without properly appreciating the scope and conditions of Section 54(3) of the CGST Act, 2017. 4.2. It was submitted that the Respondent's claim ....
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....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 ot 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 aluminium 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 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 o....
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....e and the original Refund Rejection Order be restored. 5. Submission of the Respondent 5.1. The learned Counsel appearing on behalf of the Respondent opposed the Departmental Appeal and submitted that the impugned Order-in-Appeal had been passed after proper appreciation of the facts and the applicable statutory provisions. 5.2. The Respondent submitted that it was engaged in the manufacture and sale of leather products and that coal was used as fuel for generating energy required for the manufacturing process. Compensation Cess was duly paid on the purchase of coal, and the corresponding ITC was lawfully availed. 5.3. It was submitted that Section 2(g) of the Compensation Cess Act recognises Compensation Cess charged on inward supplies as input tax. Further, Section 11(2) makes the relevant provisions of the CGST Act applicable to Compensation Cess, subject to the statutory conditions. Therefore, the Respondent was legally entitled to avail ITC of Compensation Cess paid on coal. 5.4. The Respondent contended that the proviso to Section 11(2) restricts utilisation of Compensation Cess ITC against liabilities other than Compensation Cess, but does not expressly prohib....
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....Counsel for the Respondent, the original Refund Rejection Orders and the impugned Order-in-Appeal dated 05.07.2021. 6.2 The dispute concerns the refunds claimed by M/s Pacific Leather Pvt. Ltd. towards accumulated Input Tax Credit of Compensation Cess paid on coal used as fuel in the manufacture of leather products during the tax period as mentioned above. 6.3 The material facts indicate that Compensation Cess was paid on the purchase of coal, whereas the Respondent's finished leather products sold in the domestic market were not subject to Compensation Cess. The Respondent filed its refund applications under the inverted tax structure category. 6.4 we find that the central issue is whether the Respondent's claim satisfies the statutory requirements for refund of unutilised Cess under Section 54(3) of the CGST Act, 2017. 6.5 Statutory conditions under Section 54(3) of the CGST Act, 2017 Section 54(3) of the CGST Act, 2017, provides, "(3) Subject to the provisions of sub-section (10), a registered person may claim refund of any unutilised input tax credit at the end of any tax period: Provided that no refund of unutilised input tax credit shall be all....
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....redit. These matters are governed by separate statutory provisions. Therefore, even assuming that the Respondent was entitled to avail the Compensation Cess ITC on coal, it was still required to establish an independent entitlement to refund under Section 54(3). 6.11 The First Appellate Authority placed undue reliance upon Section 17(5) without adequately examining the refund conditions. We find that the reasoning adopted in the impugned Order-in-Appeal is insufficient to sustain the grant of refund. 6.12 Section 11(2) of the Goods and Services Tax (Compensation to States) Act, 2017, provides for the application of specified provisions of the CGST Act and the IGST Act to Compensation Cess, subject to the conditions stipulated therein. The proviso to Section 11(2) states: "Provided that the input tax credit in respect of cess on supply of goods and services leviable under section 8, shall be utilised only towards payment of said cess on supply of goods and services leviable under the said section." 6.13 The statutory restriction preserves the separate character of Compensation Cess ITC and confines its utilisation to payment of the corresponding Compensation Cess. ....
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....ods, the relevant amendments and the tax period concerned. 6.22 The material presently available does not establish that the finished leather products manufactured by the Respondent fall within a specified category covered by the notification as applicable during the period as mentioned above. We find, therefore, does not base its conclusion upon an assumption that the notification applies to the Respondent's goods. Nevertheless, the absence of an applicable notification-based restriction would not, by itself, establish a right to refund. The substantive requirements of Section 54(3) must independently be fulfilled. 6.23 The Respondent has relied upon Circular No. 45/19/2018-GST dated 30.05.2018 in support of its refund claim. Paragraph 5 of the circular concerns refund of unutilised Compensation Cess ITC on inputs where the final product is not subject to Compensation Cess. Paragraph 5.1 identifies the issue by reference to exporters manufacturing aluminium products using coal, where Compensation Cess is levied on coal but not on aluminium products. Paragraph 5.2 clarifies: " ... a registered person making zero rated supply of aluminum products under bond or LUT may c....
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....ies. The record does not establish that the disputed amount is attributable to exports or other qualifying zero-rated supplies. 6.33 Accordingly, the decision cannot be treated as establishing an automatic entitlement to refund under the inverted tax structure category for the domestic supplies involved in the present case. 6.34 The Respondent relied on In Tata Steel Limited v. State of Jharkhand, the Jharkhand High Court, by judgment dated 03.04.2025, considered a refund claim concerning Compensation Cess ITC on coal used in manufacturing goods exported under a Letter of Undertaking. 6.35 The Court set aside the rejection orders because the refund had been rejected on grounds found to be beyond the requirements of the applicable statutory provisions, rules and binding circulars. 6.36 The judgment concerned exported goods and the procedural requirements applicable to the refund claim in that case. It does not directly determine the admissibility of a refund arising from domestic outward supplies of leather products. The decision is, therefore, distinguishable on facts and does not dispense with the requirement to establish the statutory conditions of Section 54(3) in th....