QUESTION

ABC is a Private Limited Company registered under the Goods & Service Tax Act. They are in the business of Textile processing i.e. Dyeing, bleaching and printing of fabrics under the GST regime. They are covered under Inverted Duty Structure, accordingly they are taking refund from GST department. In their manufacturing process they use Coal for boiler to generate steam for the processing activity. Suppliers of the Coal (HSN 270119) are charging CESS on coal supply.
In their output services (SAC Code 998821) only IGST/CGST/SGST is chargeable @ 5% based on the intra and interstate supply. CESS is not chargeable on their services

Query: As they are using the coal in processing whether they are eligible for the CESS refund under inverted duty structure even though on the final supply they are not charging CESS.

ANSWER

FACTS OF THE CASE:

Compensation cess leviable on inputs. However finished goods do not attract cess. To consider the admissibility of refund.

LAW APPLICABLE:
1. Subsection (1) of Section (11) of GOODS AND SERVICES TAX (COMPENSATION TO STATES) ACT, 2017 dictates that
"The provisions of the Central Goods and Services Tax Act, and the rules made thereunder, including those relating to assessment, input tax credit, non-levy, short-levy, interest, appeals, offences and penalties, shall, as far as may be, mutatis mutandis, apply, in relation to the levy and collection of the cess leviable under section 8 on the intra-State supply of goods and services, as they apply in relation to the levy and collection of central tax on such intra-State supplies under the said Act or the rules made thereunder."

2. Section 54(3) CGST is specifies that
"(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 allowed in cases other than''

(i) zero rated supplies made without payment of tax;

(ii) 'where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council"

INTERPRETATION:
Compensation Cess is levied under GST (compensation to states) ACT, 2017 This act is very concise in itself and specifically addresses the matters which are particular to cess. For all other matters, section 11 urges to apply the CGST and IGST laws in the same spirit, mutatis mutandis, to provisions of cess.
By virtue of this section 54 of CGST Act is invoked and the proviso to sub-section (3) restricts refund of ITC in case output is nil rated or fully exempt.
As for the current case, wherein output is exempt from the levy of cess, the refund for the same can not be claimed.

CONCLUSION:
Refund of unutilised ITC of cess will be restricted. However if the taxable person is engaged in zero rated supply of goods on which cess is not leviable then refund of unutilised ITC of cess can be claimed u/s 54(3) clause (i) instead of clause (ii). This refund will be admissible and the same is also affirmed by para 5 of circular 45/19/2018 dated 30.05.2018 (Reply dt. 21/03/2022)