Refund of Compensation Cess on Coal: CBIC Clarification Explained
CBIC addressed this in Circular No. 181/13/2022-GST dated 10.11.2022, denying such refunds. But is this circular legally tenable? Let’s break it down.
What Is Compensation Cess on Coal?
Compensation cess is levied under the Goods and Services Tax (Compensation to States) Act, 2017 to compensate states for revenue loss post-GST.
Coal attracts cess at a fixed rate (₹400/tonne).
The CBIC Stand: Circular 181/13/2022
CBIC Circular No. 181/13/2022-GST clarified:
“No refund of compensation cess is allowed on inputs used in zero-rated supply of goods where the final product is not leviable to cess.“
This applies even if:
- IGST is paid on export
- Input coal attracted cess
- Exported goods are zero-rated
Legal Challenges to the CBIC View
Multiple High Courts have questioned the legality of this restriction, as:
- Circulars cannot override statutory provisions (Section 54 of CGST Act)
- There’s no express bar in law against refund of compensation cess on inputs used in zero-rated supplies
- Cess is a part of GST as per Section 11 of Compensation Act
Key Case Law – Gujarat High Court (2023)
In Shree Cement Ltd. vs Union of India (2023), the Gujarat HC held:
“The denial of refund of input cess used for zero-rated exports is not backed by any express prohibition under the GST law.”
Refund of Compensation Cess on Coal: When It’s Allowed
Allowed
- No double benefit (i.e., ITC + refund + duty drawback) claimed
Not Allowed
- If refund claimed under inverted duty structure
- If cess was not actually paid or ITC is ineligible
Expert View: Circular Can’t Override the Act
Tax expert opinion:
“Refund of compensation cess on coal used in exports is supported by Section 54 of the CGST Act read with the Compensation to States Act. CBIC’s Circular 181 goes beyond the Act and is legally challengeable.”
Exporters denied refund solely based on this circular can file a writ petition.
Step-by-Step: How to Claim Refund of Compensation Cess
- Maintain separate records of coal used in exported goods
- File refund under “Export of goods with payment of tax”
- Attach purchase invoices showing cess and export shipping bills
- Provide declaration of no double benefit (drawback/RODTEP)
Circular 181 vs Section 54: What Prevails?
| Parameter | Circular 181 | Section 54, CGST Act |
|---|---|---|
| Legal Status | Subordinate instruction | Statutory law |
| Can deny refund of cess? | Says yes | Silent – interpreted as allowed |
| Binding nature | On officers, not courts | Mandatory |
| Court stance | Circular cannot override statute | Refund eligible under law |
Practical Tip for Exporters
If your refund of compensation cess on coal is denied solely based on Circular 181:
- File appeal or writ petition
- Cite case laws like Shree Cement
- Emphasise that refund is part of the zero-rated supply ecosystem
Conclusion
The refund of compensation cess on coal used in exported goods remains legally permissible, despite CBIC Circular 181’s contrary view. Courts have upheld exporters’ rights under the CGST Act and Compensation Cess Act. Exporters must stay updated, maintain documentation, and assert their refund claims legally where denied.
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Reach out to Efiletax – India’s trusted tax compliance partner for exporters.
FAQ on Refund of Compensation Cess
Q1. Is cess on coal eligible for refund under Section 54?
Yes, if used for exports and not restricted under Section 17(5), refund is claimable.
Q2. Does Circular 181 have legal force?
It’s binding on GST officers but can’t override the law. Courts have ruled against such restrictions.
Q3. Can I claim refund if I exported under LUT without charging cess?
Yes, compensation cess on inputs like coal can still be refunded.
Q4. What documents are needed to claim cess refund?
Invoices showing cess paid, shipping bills, GSTR-3B, and declarations regarding non-availment of drawback.
Summary
Courts have ruled that CBIC Circular 181/2022 cannot override GST law. Learn the eligibility, process, and legal support for such refund claims.