Have you filed your GST Refund Application?

What is compensation cess and why was it introduced with GST?

After introduction of GST in India, many states were losing income from various sources of taxes levied by them. Now to mitigate those losses, the Central Government has decided to levy compensation cess on specified goods for an initial 5 years of period. Few of the specified goods are Coal, Pan Masala, Aerated waters etc.

Can we utilise the ITC of compensation cess?

Yes, we can utilise ITC of compensation cess for the payment of Compensation cess only. No other taxes (CGST,SGST,IGST) can be set off against compensation cess.

Can we claim a refund of compensation cess charged on purchases?

Yes, we can take a refund of compensation cess charged on purchases of specified goods.

Can we claim a refund of ITC even though coal was used for captive consumption of electricity?

Yes, we can claim a refund. There is no difference between Intermediate goods or services and final goods or services under GST. Input clearly defines under gst as include any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. So, we can claim a refund on coal used for captive consumption of electricity.

Can we claim full refund of compensation cess charged on purchases?

No, we can take refund of compensation cess charged on purchases in proportion to zero rated supply (Export of Goods) against adjusted annual turnover.

Should we reverse cess on the same month in which we are going to claim refund?

No, we should not reverse cess on the same month. It will not allow us to claim full Net ITC while filing a refund application. So, we should not reverse cess on the same month. We can reverse the remaining cess after the refund has been disbursed to the bank account.

What is Zero rated supply?

Zero rated supply means Export of goods or services or both or supply of goods or services or both to SEZ Developer or SEZ unit ( Eligible for refund under this category of refund only if export made without payment of tax under LUT/Undertaking).

What is Adjusted Annual Turnover?

Total Turnover in States or Union Territories (Incl. Export of Goods)
Less: Turnover of services in States or Union Territories
Add: Turnover of Zero-rated supply of services and Non-Zero rated supply of services
Less: Exempt supply of goods or services or both
Less: Turnover of supplies in respect of which refund is already claimed under sub-rule (4A) or (4B) or both if any.

How to calculate the amount of refund to be claimed?

Step 1 - Total zero-rated turnover
Step 2 - Total adjusted annual turnover for the period of refund
Step 3 - Total ITC of compensation cess
Step 4 - Step 3 X Step 1 / Step 2
Step 5 - Balance of credit in Electronic Credit Ledger (ECL) at the end of refund period.
Step 6 - Balance of credit in ECL at the time of claiming refund.
Step 7 - Lowest of Step 4, Step 5 and Step 6

Example: In FY 2020-21, A Ltd had total adjusted annual turnover of Rs. 100 Cr, Zero-rated supply of goods of Rs. 25 Cr, Total ITC of compensation cess of Rs. 50 Lakhs, Balance of credit in ECL at the end of refund period (Mar-21) of Rs. 50 Lakhs and Balance of credit in ECL at the time of claiming refund (July-21) of Rs. 60 Lakhs.

Ans: Total adjusted annual turnover - 100 Cr
Zero-rated supply of goods - 25 Cr
Total ITC of compensation cess - 50 Lakhs
So, 50 Lakhs X 25 Cr / 100 Cr = 12.5 Lakhs

Balance of credit in ECL at the end of refund period - 50 Lakhs
Balance of credit in ECL at the time of claiming refund - 60 Lakhs
Lowest of three will be Rs. 12.5 Lakhs. Therefore, the Cess Refund amount will be Rs. 12.5 Lakhs.