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Refund of Accumulated Input Tax Credit of Compensation Cess

The calculation of compensation Cess under GST is very similar to calculating GST. Compensation cess is applicable above the amount of GST charged on a specific good or service. The stipulated rate is applied to the transaction value given under CGST Act 2017- section 15. According to this act, the centre needs to compensate the states for loss of their revenue due to the execution of GST because GST is a taxation system which are consumption-based.

For providing compensation to the States for such loss, compensation cess provisions were introduced which would be levied for a period of 5 years from commencement of GST (till 30.6.2022).

As we are aware of the fact that GST is a consumption-based tax wherein due to introduction of GST, manufacturing States feared loss of revenue. There are some goods which Central government has notified on which compensation cess would be levied:

  1. Pan masala
  2. Tobacco & manufactured tobacco substitutes and tobacco products.
  3. Coal and similar solid fuels manufactured from coal
  4. Aerated waters
  5. Motor vehicles (specified)
  6. Other supplies as notified from time to time.

Availability of Input Tax Credit: Cess charged on any of above supply(domestic/import) is considered as input tax [s.2(g) CESS Act]. Provision related to credit of input tax under IGSTA & CGSTA is mutatis mutandis made applicable on CESS Act [s. 11 Cess Act]. Credit of Input tax may be availed in case of zero-rated sale if section 17(5) of CGSTA is not prohibiting [section 16(2) IGSTA]. As section 17(5) of CGSTA is not blocking the credit of Cess, hence ITC can be taken for Cess paid. But Income Tax Credit related to Cess only can be utilized against Cess Output on specified goods only, and thus if final goods are not fall under scheduled goods, CC ITC will remain unutilized.

Refund of accumulated ITC of compensation cess:

The refund of accumulated Income Tax Credit of compensation cess could be claimed by satisfying these below mentioned conditions:

  1. The person who are registered would have paid compensation cess on inward supply of goods.
  2. The inward goods would have made use for manufacturing the final goods.
  3. The final goods would have been exported under bond without payment of IGST.
  4. The compensation cess would have been availed as Income tax credit in GSTR 3B return.
  5. The final goods may or may not be liveable to compensation cess.
  6. Other conditions for claiming refund which mentioned under section 54 of CGST Act.

If the registered person has both domestic & export supply of goods, in such case refund of accumulated ITC of compensation cess could be applied only to the limit of export turnover. In terms of GST (Compensation to States) Act 2017- section 9, taxable person may apply for refund of compensation cess as per the rules of CGST Act 2017.

Thus exporter will have right to claim refund of IGST paid under section 16(2)(b) of IGSTA and also shall be entitled to claim refund of unutilized CC ITC under section 16(2) (a) of IGSTA, even though he/she hasn’t done export under LUT, but on payment of IGST.