The Goods and Services Tax Appellate Tribunal (GSTAT), Ranchi, has dismissed a department’s appeal challenging a ₹35,84,057 refund of unutilised Compensation Cess credit to a steel exporter.
The bench of Tushsar Kanti Satapathy (Judicial Member) and Bijoy Bihari Mahapatra (Technical Member) has observed that an input tax credit (ITC) reversal recorded during a refund period cannot automatically be deducted from “Net ITC” under Rule 89(4) when the underlying credit belongs to earlier tax periods.
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The dispute concerned a ₹2 crore reversal reflected in a GSTR-3B return during the July 2022 to March 2023 refund period. Revenue argued that paragraph 43(c) of CBIC Circular No. 125/44/2019-GST required the reversal to be deducted while calculating the exporter’s refund. The Tribunal rejected that reading, saying the rule focuses on credit availed during the relevant period, not every reversal entered during it.
The appellant/assessee manufactures and exports mild steel billets. According to the order, coal used in production attracted Compensation Cess, while the finished billets did not. This left unutilised cess credit in the company’s electronic credit ledger. The company exported goods without payment of tax under a Letter of Undertaking and sought a refund for exports made from July 2022 to March 2023.
The adjudicating authority sanctioned a refund of ₹35,84,057 in June 2024. Revenue challenged that decision, but the first appellate authority upheld it. Revenue then appealed to the GSTAT under Section 112(3) of the CGST Act.
The department’s central objection was that the company had reversed ₹2 crore of cess credit in a GSTR-3B return filed during the refund period. It argued that reversed credit could no longer be regarded as “availed” credit under the CBIC circular and should reduce the Net ITC used in the refund formula. Revenue also questioned whether the company had adequately proved that the ₹2 crore related to earlier periods.
The exporter maintained that the reversal concerned credit from previous tax periods and had no connection with the ITC underlying this refund claim. It argued that using the date of reversal alone to reduce Net ITC would change the formula prescribed by Rule 89(4).
Under Rule 89(4), the refund for zero-rated supplies made without payment of tax is calculated using Net ITC, zero-rated turnover and adjusted total turnover. The rule defines Net ITC, for this purpose, by reference to ITC availed on inputs and input services during the relevant period.
The Tribunal said the decisive question was whether the credit being reversed had been availed during that same refund period. On its reading of the records, the ₹2 crore reversal related to an earlier period and had not formed part of the Net ITC used for the July 2022 to March 2023 claim.
The bench also relied on the examination of GSTR-3B returns and electronic credit ledger records by the authorities below. It accepted their finding that Net ITC of cess for the relevant period stood at ₹2,19,41,356 and that the ₹35,84,057 refund had been calculated within the framework of Rule 89(4). The Tribunal found Revenue’s allegation that the ₹2 crore had been included in the refund calculation unsupported by the material before it.
The Tribunal considered paragraph 43(c) of the CBIC circular, which states that reversed ITC cannot be treated as availed in the relevant period. It held that this clarification must be applied consistently with Rule 89(4).
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