Cess Refund on Coal for Captive Power Allowed in Zero-Rated Exports | HC

Case Details: Cess on coal for captive power used in zero-rated exports eligible for refund : HC

Judiciary and Counsel Details

• BHARGAV D. KARIA and Pranav Trivedi, JJ.
• Abhay Y. Desai and D.K. Trivedi for the Petitioner.
•  Ms. Hetvi H. Sancheti for the Respondent.

Fact of the Case

The petitioner, a company engaged in the manufacture and sale of various chemical products, sought refund of unutilised input tax credit (ITC) of cess paid on purchase of coal used for captive power generation in the course of manufacturing goods exported as zero-rated supplies on payment of IGST. For the relevant period, the petitioner purchased coal from the open market and paid cess as charged by its vendors. The electricity generated from the coal was used in the manufacture of chemical products that were either exported outside India or supplied to Special Economic Zone Units. The petitioner submitted that although IGST was paid on export of goods, cess was not payable on such supplies, and hence, ITC of cess accumulated without utilisation. A refund claim was filed for the proportionate cess credit relatable to such zero-rated supplies. The jurisdictional authority rejected the refund on the ground that exports were made with payment of IGST, and therefore, refund of cess credit was not admissible. The appeal against the said rejection was also dismissed, and the matter was accordingly placed before the High Court.

HC Held

The High Court held that the issue was no longer res integra in view of the decision in Patson Papers Pvt. Ltd. v. Union of India [2023] 145 taxmann.com 231 / 81 GST 345 (Guj.), wherein it was held that refund of unutilised ITC of cess paid on coal is admissible where such coal is used for manufacture of goods that are exported as zero-rated supplies. It was observed that even where IGST is paid on export of goods, the goods themselves may be exempt from compensation cess, and therefore no output liability of cess arises. Since the facts in the present case were identical to those in Patson Papers Pvt. Ltd., the Court held that the petitioner was entitled to refund of unutilised ITC of cess paid on purchase of coal used in the manufacture of exported goods. The Court directed the Department to process the petitioner’s refund application accordingly.

List of Cases Reviewed

• Patson Papers (P.) Ltd. v. Union of India [2025] 174 taxmann.com 6 (Gujarat) (para 7), followed

List of Cases Referred to

• Patson Papers (P.) Ltd. v. Union of India [2025] 174 taxmann.com 6 (Gujarat) (para 4.3).