Exporters Entitled To Unutilised Compensation Cess Refunds Paid On Inputs Like Coal: Telangana HC

The Telangana High Court has held that exporters are entitled to refunds of unutilised compensation cess paid on inputs like coal, even where the finished goods are exempt from cess and exported as zero-rated supplies. The bench of Chief Justice Sri Aparesh Kumar Singh and Justice G.M.Mohiuddin has set aside multiple orders rejecting refund claims of accumulated compensation cess filed by Aurobindo Pharma Limited and remanded the matter for fresh consideration. The decision follows authoritative judgments of the Gujarat High Court on similar issues concerning refunds of unutilised compensation cess on zero-rated supplies. Aurobindo Pharma Limited, a major pharmaceutical manufacturer, had filed a batch of writ petitions challenging orders passed by the State tax authorities rejecting its claims for refund of compensation cess paid on inputs, primarily coal, used in manufacturing pharmaceutical products. These products were subsequently exported or supplied to SEZ units, qualifying as zero-rated supplies under GST law. The refund claims related to multiple tax periods spanning July 2018 to July 2022, with individual refund amounts ranging from a few thousand rupees to over ₹77 lakh. The original refund applications were rejected by the proper officer, and such rejections were confirmed by the appellate authority, prompting the company to approach the High Court. The central legal question before the Court was whether a registered person is entitled to a refund of unutilised input tax credit (ITC) of compensation cess paid on inputs when the final products exported are not leviable to compensation cess, and where exports were made either without payment of cess or with payment of Integrated GST (IGST). The tax department relied heavily on Circular No. 45/19/2018-GST dated 30 May 2018, arguing that refund of compensation cess is not permissible in cases of zero-rated supplies made on payment of IGST. According to the authorities, the petitioner had also incorrectly classified its refund applications under an inappropriate category in the prescribed form, justifying rejection. Aurobindo Pharma contended that compensation cess paid on coal qualified as eligible input tax credit under the GST framework and that exports and SEZ supplies are zero-rated even under the Goods and Services Tax (Compensation to States) Act, 2017. Since the exported pharmaceutical products were non-taxable under the Cess Act, no bond or Letter of Undertaking (LUT) was required, in line with CBIC circulars. The company further argued that Section 54(3) of the CGST Act, read with the relevant provisions of the Cess Act and IGST Act, permits refund of unutilised ITC in cases of zero-rated supplies, irrespective of whether IGST was paid on exports. It was also emphasised that compensation cess credit cannot be utilised for payment of IGST, leaving refund as the only viable mechanism to neutralise cascading tax effects. During the hearing, the State informed the Court that the legal position had been clarified by the Gujarat High Court in Atul Limited v. Union of India and Patson Papers Private Limited v. Union of India. In these decisions, the Gujarat High Court held that exporters are entitled to refunds of unutilised compensation cess paid on inputs like coal, even where the finished goods are exempt from cess and exported as zero-rated supplies. It was also noted that the judgment in Patson Papers had been challenged before the Supreme Court, but the Special Leave Petition was dismissed, lending finality to the legal principle. Taking note of the settled legal position and the State’s submission that it was willing to reconsider the matter, the Telangana High Court set aside both the original refund rejection orders and the appellate orders. The Court remanded the entire matter to the original authority with a direction to pass fresh orders in accordance with law after granting an opportunity of hearing to the petitioner. The Court directed that the reconsideration exercise be completed within four months and disposed of all the writ petitions without any order as to costs. Case Details Case Title: Aurobindo Pharma Limited Versus State of Telangana Case No.: WRIT PETITION Nos. 2391, 2404, 2411, 2412, 2418, 2438, 2439, 2442, 2445 and 2446 of 2023; 24133, 24244, 24500, 24578, 35222, 35228, 35470, 35895, 36000, 36077, 36078, 36130, 36186 and 37285 of 2025 Date: 10/12/2025 Counsel For Petitioner: Kailash Nath P S S Counsel For Respondent: Sri Swaroop Oorilla Click Here To Read Order Read More: Tax on Exempt Disability Pension Must Be Refunded, Limitation Under CBDT Circular Can’t Defeat Statutory Right: Gujarat HC

Exporters Entitled To Unutilised Compensation Cess Refunds Paid On Inputs Like Coal: Telangana HC

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