Introduction:

In a significant ruling, the Jharkhand High Court has directed the refund of ₹1,23,22,617 to Tata Steel Limited, representing the Input Tax Credit (ITC) on Compensation Cess paid for coal purchases under Section 8(2) of the Goods and Services Tax (Compensation to States) Act, 2017. The division bench, comprising Chief Justice M.S. Ramachandra Rao and Justice Deepak Roshan, found that the denial of this refund by the state authorities was based on extraneous grounds and lacked legal standing.

Case Background:

Tata Steel Limited, a prominent steel manufacturer with its largest plant located in Jamshedpur, Jharkhand, procures coal as a primary raw material for its steel production. The company paid Compensation Cess on these coal purchases and subsequently claimed ITC for the same. However, when Tata Steel applied for a refund of the unutilized ITC accumulated from zero-rated exports conducted between January and February 2019, the state authorities rejected the claim. The rejection was based on several grounds, including alleged non-compliance with procedural requirements and documentation deficiencies.

Petitioner’s Arguments:

• Proof of Payment for Export of Goods: Tata Steel contended that, according to Rule 89(2)(b) and 89(2)(c) of the CGST Rules, proof of payment is required only for the export of services, not goods. For goods, a reconciliation statement of the Shipping Bill and Export Invoices suffices, which the company had duly provided.
• Proof of Export Within 90 Days: The company asserted that the Export General Manifest (EGM) details submitted demonstrated that the exports occurred within 90 days of the invoice dates, complying with the stipulated timeframe.
• Declaration of Non-Prosecution: Tata Steel argued that there is no statutory requirement under the Act to furnish a declaration of non-prosecution. Nonetheless, the company had submitted such a declaration in response to the Show Cause Notice issued by the Department.
• Undertaking Under Proviso to Section 11(2) of the Cess Act: The company maintained that this proviso pertains to the set-off of ITC of Cess against Output Tax Liability of Cess. Since Tata Steel exports goods under a Letter of Undertaking without payment of tax, the set-off provision was inapplicable.
• Statement as per Para 43(C) of the 2019 Circular: Tata Steel highlighted that this requirement applies only when there has been a reversal of credit, which was not the case here.

Respondent’s Arguments:

The state authorities defended their decision to reject the refund application by citing the aforementioned grounds, emphasizing procedural non-compliance and insufficient documentation on Tata Steel’s part.

Court’s Analysis and Judgment

The High Court meticulously examined each ground cited by the state authorities:

• Proof of Payment for Export of Goods: The Court concurred with Tata Steel, stating that for the export of goods, only a reconciliation statement of the Shipping Bill and Export Invoices is required, which the company had provided.
• Proof of Export Within 90 Days: Upon reviewing the reconciliation statement and EGM details, the Court found that the exports were indeed conducted within the prescribed 90-day period.
• Declaration of Non-Prosecution: The Court noted that no such requirement is mandated under the Act. Moreover, Tata Steel had submitted the declaration in response to the Show Cause Notice.
• Undertaking Under Proviso to Section 11(2) of the Cess Act: The Court observed that this proviso relates to the set-off of ITC against Output Tax Liability, which is irrelevant in cases where goods are exported under a Letter of Undertaking without tax payment.
• Statement as per Para 43(C) of the 2019 Circular: The Court determined that this provision applies only in instances of credit reversal, which was not applicable in Tata Steel’s situation.

Concluding that the rejection of Tata Steel’s refund application was based on extraneous and legally unsustainable grounds, the Court quashed the impugned order. It directed the respondent authorities to process and refund the amount of ₹1,23,22,617 to Tata Steel, along with the stipulated interest under Section 56 of the Central Goods and Services Tax Act, 2017, within a period of four weeks.