Sukraft Recycling Private Limited Rep. By Its Director Ketan Bharatkumar Patel vs. Union Of INDIA Thr. The Joint Secretary And 2 Ors

Held

The Court held that the Petitioner is entitled to claim a refund of unutilized input tax credit of compensation cess paid on raw materials. The Court found the justification for refusing the benefit to the Petitioner to be illogical, as the input tax credit component under CGST/IGST is different from that of compensation cess. The Court noted that the definition of 'input tax credit' under the CGST Act does not include compensation cess, whereas the Goods and Services Tax (Compensation to States) Act, 2017, defines 'input tax credit' to include cess. Section 9 of the Compensation to States Act, 2017, and Section 11 of the same Act, read with Section 16 of the IGST Act, 2017, permit the claim of refund of unutilized input tax credit of compensation cess paid on inputs used for zero-rated supplies, even if the final product is not subject to compensation cess. The Court found that the Petitioner's export of Kraft Paper was not disputed, and therefore, the absence of a bond or Letter of Undertaking should not prevent them from availing the methodology prescribed in Clause (a) of Section 16(3) for refund of unutilized compensation cess. The Court relied on the Gujarat High Court's decision in Patson Papers Pvt. Ltd. v/s. Union of India. The Revenue was directed to refund the compensation cess credit to the Petitioner within four weeks, along with admissible interest.

Facts

Sukraft Recycling Private Limited (Petitioner), a manufacturer of Kraft Paper, sought a refund of compensation cess paid on coal used as raw material for the financial year 2021-2022, amounting to approximately Rs. 36 lakhs. The Petitioner exports its Kraft Paper on payment of IGST @ 12% and utilizes Input Tax Credit (ITC) for CGST, IGST, and SGST on raw materials. While refunds for IGST and CGST were allowed under Section 16(3)(b) of the IGST Act, 2017, the refund for compensation cess was denied. The denial was based on the interpretation that Section 16(3) of the IGST Act permits claiming refund through only one of the two modes ('either' or 'or'). The Petitioner argued that the compensation cess on coal is distinct from CGST/IGST on the final product, which is not subject to compensation cess.

Key Issues

1. Whether the Petitioner is entitled to claim a refund of unutilized input tax credit of compensation cess paid on raw materials (coal) used for manufacturing exported goods, when the final product (Kraft Paper) is not subject to compensation cess, under Section 16(3) of the IGST Act, 2017, read with Section 11 of the Goods and Services Tax (Compensation to States) Act, 2017? Petitioner's Arguments: - The Petitioner contended that the input tax credit of compensation cess on raw materials is distinct from the IGST/CGST on the final exported product. - They argued that Section 16(3) of the IGST Act, 2017, allows for refund of unutilized input tax credit in cases of zero-rated supply. - Reliance was placed on the Gujarat High Court's decision in Patson Papers Pvt. Ltd. v/s. Union of India, which dealt with a similar issue. Revenue's Arguments: - The Respondent authorities argued that Section 16(3) of the IGST Act, 2017, provides for two mutually exclusive options for claiming refunds ('either' or 'or'), and the Petitioner had already availed one option for IGST/CGST refund. - The impugned order suggested that the Petitioner should resort to the same mechanism (Clause (b)) for the compensation cess refund.