In a major relief to exporters, the Gujarat High Court has permitted refund of Compensation Cess ITC on captive‑power inputs used for SEZ/Exports.
The bench of Justice Bhargav D. Karia and Justice Pranav Trivedi have ruled in favor of Atul Limited, quashing orders that denied the company a refund of GST Compensation Cess paid on coal used for manufacturing export goods.
The petitioner, Atul Ltd, a public limited company engaged in the manufacture of chemicals, supplies products to Special Economic Zone (SEZ) units and exports them outside India. For its manufacturing operations, it procures coal to generate captive power and pays GST Compensation Cess on the coal purchases. The finished goods are exported with payment of IGST, but no compensation cess is levied on them.
For FY 2019–20, Atul Ltd claimed a refund of ₹3.39 crore of unutilized input tax credit (ITC) of compensation cess paid on coal under Section 11 of the GST (Compensation to States) Act, 2017, read with Section 54(3) of the CGST Act and Section 16 of the IGST Act. However, the tax authorities rejected the claim, citing Circular No. 45/19/2018-GST and Circular No. 125/44/2019-GST, which, according to them, restricted refunds of unutilized cess credit to cases where exports were made without payment of IGST.
Following the rejection of the refund order (April 2021) and the appellate order (May 2022), the company moved the High Court challenging the denial and validity of the circulars.
The petitioner argued that Sections 9 and 11 of the Cess Act make GST provisions on ITC and refunds applicable mutatis mutandis to cess. Since Atul Ltd paid cess on coal used in the course of business for zero-rated supplies, it was entitled to a refund. He also relied on the Gujarat High Court’s earlier ruling in Patson Papers Pvt Ltd v. Union of India (2023), where a similar issue was decided in favor of exporters.
The department contended that the issue was already settled by the Patson Papers case, wherein the Court held that refund of unutilized cess ITC cannot be denied merely because exports were made with IGST payment.
The bench held that the authorities had misinterpreted the cited circulars and the proviso to Section 11(2) of the Cess Act. It observed the petitioner paid cess on coal but no cess is leviable on the exported goods. Under Section 54(3) CGST Act read with Section 16 IGST Act and Section 11(2) Cess Act, exporters are entitled to refund of unutilized cess credit attributable to zero-rated supplies. The circulars only clarify that cess ITC cannot be utilized to pay IGST; they do not bar refunds of unutilized cess ITC where goods are exported with IGST payment.
Citing identical facts with the Patson Papers case, the bench quashed the impugned orders and directed the authorities to sanction Atul Ltd’s refund claim.
Case Details
Case Title: Atul Limited & Anr. Versus Union Of India & Ors.
Case No.: R/Special Civil Application No. 20038 Of 2022 With R/Special Civil Application No. 19949 Of 2022
Date: 24/07/2025
Counsel For Petitioner: Abhay Y Desai
Counsel For Respondent: Hetvi H Sancheti
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