No Cess Applicable On Coal Used As An Input For Manufacturing Finished Goods Used For Domestic Supply: Calcutta High Court

The single bench of Justice Md. Nizamuddin has observed that goods which are subject to a nil rate of cess would be construed as exempt supplies for purposes of the formula prescribed in Rule 89 (4) of the CGST Rules. Therefore, it deserves to be excluded from the calculation of adjusted total turnover.

The ​​petitioner/assessee company is aggrieved by inaction and refusal on the part of the CGST authorities concerned in disbursing the refund amount with applicable interest as per the order passed by the Appellate authority in spite of repeated requests.

The CGST authorities challenged the order of the Appellate authority on the ground that it is perverse since the Appellate authority in the order has not considered the definition of "non-taxable supply" as defined in the CGST Act, 2017.

The CGST authorities contended that the sanctioning authority has rightly included the domestic supply in the adjusted total turnover and has rightly rejected a part of the refund claim of the assessee company. The order of the Appellate authority, on the basis of which the assessee company has claimed the refund, is not sustainable.

The issue raised was whether to compute the refund of credit of compensation cess to be made under Section 54 (3) of the CGST Act read with Rule 89 (4) of the CGST Rules as applicable mutatis mutandis to the Cess Act. The domestic turnover of final products, which are not taxable under the Cess Act, could be excluded to arrive at the adjusted total turnover under Rule 89(4) of the CGST Rules.

The refund of ITC of Cess in cases of zero-rated supply of goods is governed by the provisions of Section 9(2) and Section 11 of the Cess Act read with Section 54 of the CGST Act read with Rule 89 (4) of the CGST Rules. The formula prescribed under Rule 89 (4) of the CGST Rules categorically excluded the value of exempt supplies other than zero-rated supplies in the calculation of adjusted total turnover. Since "exempt supply" has not been defined under the Cess Act, the definition of exempt supply contained in Section 2 (47) of the CGST Act shall apply mutatis mutandis for the computation of the refund of ITC of Cess by the application of the provisions of Section 11, Section 9 and Section 2 (2) of the Cess Act.

The assessee alleged that the CGST authorities had ignored the expression "mutatis mutandis" appearing in Section 2 (2) of the Cess Act. The CGST authority has not given any justification as to why domestic supplies of finished goods which are subject to a nil rate of compensation cess cannot be construed as exempted supplies.

The court noted that cess is akin to the components of GST, which is a constitutionally approved amalgam of State taxes, which existed prior to the commencement of the GST regime. The Goods and Services Tax Compensation Cess Rules, 2017 were also framed and made effective from 1st July, 2017, wherein the Central Goods and Services Tax Rules, 2017 were adapted. Having regard to the conscious use of the expression "mutatis mutandis" in Section 11 of the Cess Act, all the provisions of the CGST and IGST Acts would be squarely applicable to the levy, collection, and refund of the Cess Act. The words "tax" and "cess" for the purpose of the Act would have to be used interchangeably.

"Domestic supplies of finished goods which are not liable to Compensation Cess are to be reckoned as exempted supplies for the purpose of calculation of refund in terms of Rule 89 (4) of the CGST Rules," the court said.

Case Title: Electrosteel Castings Limited Versus The Assistant Commissioner

Citation: 2022 LiveLaw (Cal) 240

Dated: 10.06.2022

Counsel For Petitioner: Advocate Abhrotosh Majumdar

Counsel For Respondent: Advocate Priti Jain

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