The assessee company is inter alia engaged in the manufacture of ductile iron spun pipes and fittings thereof. The Assessee inter alia uses coal as an input for the manufacture of its finished goods which is subject to Cess @ Rs.400 per tonne in terms of Sl No. 39 of Notification No. 1/2017-Compensation Cess (Rate) dated 28 June 2017.

In September 2018, the Assessee reversed ITC of Cess amounting to Rs.7,01,82,060/- on account of domestic supply of finished goods not subject to Cess and Non-GST turnover.

Circular No. 45/19/2018-GST, dated 30th May 2018, was issued by CBIC in terms which stood clarified that a registered person making the zero-rated supply of final products (which are not subject to Cess) under bond or LUT may claim a refund of unutilized credit including that of compensation cess paid on coal.

Accordingly, the Assessee filed a claim of refund of ITC of Cess amounting to Rs. 3,74,54,166/- in Form RFD-01A in March 2019 for September 2018.

The said refund amount was computed following the provisions of Section 11 and Section 9 of the Cess Act and read with Section 16 of the IGST Act, Section 54 of the CGST Act, and Rule 89 (4) of the CGST Rules.

The formula for a refund of ITC in case of zero-rated supply of goods or services without payment of tax under LUT, as contained in Rule 89 (4) of the CGST Rules categorically provides for exclusion of the value of exempt supplies other than zero-rated supplies while calculating adjusted total turnover.

In computing the refund amount, the Assessee excluded supply of finished goods not subject to Cess and Non-GST turnover during the relevant period, while arriving at the adjusted total turnover. Net ITC amount was taken after reversal of Rs. ITC of Cess amounting to Rs.7,01,82,060/-.

The main issue in the instant cases which arises for consideration is whether for computing 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 having regard to the definition of ‘Adjusted Total Turnover” contained in Clause (E) of the said Rule.

The formula prescribed under Rule 89 (4) of the CGST Rules categorically excludes the value of exempt supplies other than zero-rated supplies while calculating adjusted total turnover.

Assessee company alleges that the CGST authorities concerned have ignored the expression ‘mutatis mutandis” appearing in Section 2 (2) of the Cess Act and have not given any justification as to why the domestic supply of finished goods which is subject to a nil rate of Compensation Cess cannot be construed as exempted supplies.

The Assessee submits that the adjudicating authority had taken Net ITC amount as Rs.3,56,17,002/- for computation of refund, which is after considering a reversal of a sum of Rs.7,01,82,060/- on account of supply of finished goods not subject to Cess. The reversal itself has been done by the authority on the basis that the supply of finished goods not subject to Cess is exempt supplies for Cess Act and which has not been questioned by the revenue authorities.

Consequently, the assessee filed an appeal before Appellate Authority, which provided the judgment in the favour of the assessee and granted the full refund. Consequently, they filed the refund application in pursuance of the Appeal Order. 

But, the Revenue department did not cater to the refund claimed, thus an appeal was filed by the Department before High Court against the order of the Appellate Authority.