While upholding an order granting GST refund, the Calcutta High Court has held that the goods attracting nil rate of cess shall be treated as ‘exempted’ for the purpose of adjusted total turnover under Rule 89(4) of the Central GST Rules.
Justice Md. Nizamuddin was considering an appeal by the department wherein the main issuewas whether for the purpose of 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.
Assessee company, Electrosteel Castings Limited alleged that the CGST authorities concerned have ignored the expression ‘mutatis mutandis” appearing in Section 2 (2) of Cess Act and have not given any justification as to why domestic supply of finished goods which are subject to nil rate of Compensation Cess cannot be construed as exempted supplies.
Analyzing the legislative scheme of the Cess Act, the Court observed that the cess is an impost to counterbalance the loss of revenue of the States on account of subsumption of various taxes commencement of the GST regime. Hence, cess is a levy which partakes the character of all the levies, which now are subsumed in GST.
Applying the ratio of a catena of judgments, the Court held that goods which are subject to nil rate of cess would be construed as exempt supplies for purposes of the formula prescribed Rule 89 (4) of the CGST Rules and therefore, deserves to be excluded from the calculation of adjusted total turnover.
The Court upheld the order of the appellate authority observing that the authority while passing the impugned order has neither committed any procedural irregularity nor any jurisdictional error nor any violation of principles of natural justice and theimpugned order is based on cogent reasons and is speaking one
Quashing the impugned order denying refund to the assessee company, the Court held that the “action of withholding of the petitioner/assessee’s claim of refund in question by the respondent CGST authority and not refunding the same to the petitioner in spite of the order of the Appellate authority dated 5th February, 2021, holding such claim in favour of the assessee company/petitioner, is arbitrary and unjustified and accordingly respondent CGST authorities concerned are directed to refund the amount as per the aforesaid order of the Appellate authority dated 5th February, 2021, along with applicable interest till the date of such payment, within eight weeks from the date of communication of this order.”
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