Union Of India Vs Patson Papers Private Limited

The Supreme Court dismissed the Special Leave Petition (SLP) filed by the Union of India, thereby affirming the Gujarat High Court's decision. The High Court had ruled that exporters are entitled to claim a refund of unutilised Input Tax Credit (ITC) of Compensation Cess paid on inputs (like coal), even when the final products are exported on payment of Integrated GST (IGST), provided the final product is not leviable to Compensation Cess.

Summary of High Court's Ruling (Affirmed by SC):

The Gujarat High Court addressed the conflict between the statutory zero-rating scheme and the denial of Compensation Cess refunds based on departmental circulars.

1. Facts: Petitioners, manufacturers/exporters of finished goods (not subject to Compensation Cess), purchased coal (subject to Compensation Cess) as an input. They exported the finished goods via the "IGST payment route" (Section 16 of the IGST Act) and claimed refunds of both the paid IGST and the unutilised Compensation Cess ITC.

2. Statutory Interpretation: The Court performed a conjoint reading of Section 54(3) of the CGST Act, Section 16 of the IGST Act, and Section 11(2) of the Cess Act.

3. Cess Utilization Restriction: The proviso to Section 11(2) of the Cess Act restricts the use of Cess ITC only towards payment of Cess on outward supplies. Since the exported final goods were not leviable to Compensation Cess, the Cess ITC on the input (coal) necessarily remained unutilised.

4. Circulars Misinterpreted: The Court held that the Revenue misinterpreted Circular No. 45/2018 and Circular No. 125/2019. The legislative intent of zero-rating exports requires that the input tax credit attributable to exports be refunded. Denial of refund in this scenario defeats the concept of zero-rated supply.

5. Conclusion: The petitioners were entitled to the refund of unutilised Compensation Cess ITC.

Supreme Court Order:

The Supreme Court condoned the delay in filing the SLP but declined to exercise jurisdiction under Article 136 of the Constitution, specifically noting the finding recorded in paragraph 21 of the impugned High Court order (which details the statutory analysis and conclusion).

• Decision: The Special Leave Petition is dismissed.

• Legal Precedent: The question of law, if any, is left open. (This prevents the High Court judgment from becoming a general binding precedent under Article 141 of the Constitution on the specific question of law, but the dismissal upholds the High Court's operative relief in favour of the petitioners).