Refund of Cess on Export of Pan Masala, Goods and Services Tax - GST

[Aman Muradiya]

One of My client is exporting Pan Masala with Payment of IGST and Cess.

Is he eligible to take refund of both IGST and Cess ?

Posts / Replies

[Kiran Tahelani]

yes he is eligible for refund of both IGST and Cess

[Alkesh Jani]

Shri

Pan Masala being a goods is eligible for refund of Cess, for this purpose, relevant portion of Circular No.1/1/2017-Compensation Cess dated 26th July, 2017, is given below:-

"8. In view of the above, it is hereby clarified that provisions of section 16 of the IGST Act, 2017, relating to zero rated supply will apply mutatis mutandis for the purpose of Compensation Cess ( wherever applicable), that is to say that:

a) Exporter will be eligible for refund of Compensation Cess paid on goods exported by him [on similar lines as refund of IGST under section 16(3) (b) of the IGST, 2017]; or

b) No Compensation Cess will be charged on goods exported by an exporter under bond and he will be eligible for refund of input tax credit of Compensation Cess relating to goods exported [on similar lines as refund of input taxes under section 16(3) (a) of the IGST, 2017]."

Hope this may be of your help.

Thanks

[KASTURI SETHI]

Just for knowledge sake

Section 16 (3) (a) and (3) (b) of IGST Act stand amended vide The Finance , 2021 dated 28-03-2021 ( Date is still to be notified).

[KASTURI SETHI]

Also be wary of Notification No.3/2019-Compensation Cess (Rate) dated 30.9.2019.

[Alkesh Jani]

Shri Kasturiji Sir,

In continuation of my earlier reply, the principle quoted by the Circular is worth to be noted and is given below:-

"Further, as per sub-section (5) of section 7 of IGST Act, 2017, supply of goods or services or both, when the supplier is located in India and place of supply is outside India, will be treated as inter-state supply. Therefore, exports being inter-sate supplies, they will be liable to Compensation Cess. This however will not be in line with the principle that no taxes be exported, and exports have to be zero rated".

Thanks

With Regards

[KASTURI SETHI]

Dear Sh.Alkesh Jani Ji,

I agree with you. I have posted my views for taking extra precautions in respect of all the aspects and possibilities.

[Alkesh Jani]

Shri Kasturiji Sir,

Even I agree with you, it better to explore all the possibilities, to avoid future disputes.

With Regards

[Amit Agrawal]

I agree with Shri Alkesh Jani Ji for his posts at serial no. 2 & 5 above.

Till the time when substitution in Section 16 (3) of IGST Act is made operational (i.e. amendment is already done by The Finance , 2021 dated 28-03-2021 but not made operational yet), exporter can continue exporting pan masala with Payment of IGST and Cess and claim refund of taxes & cess so paid in cash.

Also, Notification No.3/2019-Compensation Cess (Rate) dated 30.9.2019 is not problematic for the subject tax-payer under discussion as we are discussing here with export of goods and not domestic supply.

So, even after amendment u/s 16 (3) done by The Finance , 2021 dated 28-03-2021 is made operational which will in-turn eliminate the current option of claiming refund of 'taxes / cess paid while exporting', exporter will continue having option of claiming refund of ITC (including Compensation Cess) against export of 'Tobacco and manufactured tobacco substitutes falling under Chapter 24' without payment of taxes under LUT.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KASTURI SETHI]

The effective date may be enforced retrospectively. The possibility cannot be ruled out.

[Amit Agrawal]

Enforcement of effective date retrospectively (i.e. so to deny refund of taxes & cess paid at the export), if done, will be unconstitutional and hence, illegal. And such hypothetical possibility of legally untenable retrospective enforcement cannot be part of current decision-making.

[KASTURI SETHI]

There are instances where benefit to the assessees has been given by way of retrospective amendment. Section 50 was amended retrospectively w.e.f. 1.7.17, Rule 88 B was inserted w.e.f. 1.7.17, Rule 89 (5) was amended w.e.f. 1.7.17.

So retrospective amendment can be either way. The judgement of Hon'ble Supreme Court is worth reading :-

2021 (9) TMI 626 - SUPREME COURT - UNION OF INDIA Versus VKC FOOTSTEPS INDIA PVT. LTD.

[Amit Agrawal]

Giving benefit to the tax-payer by making retrospective amendment is always allowed under law.

However, snatching "specifically & unambiguously allowed benefit under law" by making retrospective amendment is not allowed in subject situation under discussion when tax-payer has paid taxes (i.e. IGST & Cess) while exporting goods only due to specific provision given under law for getting refund of these taxes so paid.

Apex Court will never allow Govt. to keep 'those taxes paid by the exporter' with it by making retrospective amendment to deny refund thereof.

Hence, I see ZERO possibility of retrospective amendment (i.e. Enforcement of effective date retrospectively so to deny refund of taxes & cess paid at the export) for situation under discussion here.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Besides, Govt's intention is also very clear as can be seen from Para 8 of earlier quoted Circular No.1/1/2017-Compensation Cess dated 26th July, 2017 as well as Para 123 of Finance Act, 2021. So, effective date for changes in Section 16 (3) of the IGST Act, 2017 will be only prospective in nature.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

In above post, please read "............ as well as Section 1 (2) read with Section 123 of Finance Act, 2021.'

[Aman Muradiya]

Thanks to all learned for helping me out that what needs to be done.

[KASTURI SETHI]

Sh.Amit Agrawal Ji,

I wish your prediction based on your observation, understanding, interpretation, analysis of the issue must come true, it being in the interest of the tax payers.

[Padmanathan Kollengode]

I agree with with experts, refund of both IGST and Cess is eligible.

[Amit Agrawal]

In continuation of earlier my posts above, please note the following recommendations of 50th meeting of GST Council, as per press release dated 11.07.2023:

"2. In accordance with the recommendations of the Group of Ministers (GoM) on Capacity based taxation and Special Composition Scheme approved by the Council in 49^th meeting, the Council has made the following recommendations:

..........

iii) provisions of section 123 of Finance Act, 2021, amending section 16 of IGST Act, to be notified with effect from 01.10.2023 and notification to be issued under section 16(4) of IGST Act. 2017 to provide for restriction of IGST refund route in respect of exports of tobacco, pan masala & other similar items as well as mentha oil"

Relevant information (for purpose of this ongoing discussion) about Special Composition Scheme approved by the Council in 49^th meeting also needs to be noted and same are as follows:

"3. Approval of the Report of GoM on Capacity Based Taxation and Special Composition Scheme in certain Sectors on GST:

With a view to plug the leakages and improve the revenue collection from the commodities like pan masala, gutkha, chewing tobacco, the Council approved the recommendations of the GoM including, inter alia, that

• the capacity based levy not to be prescribed;
• compliance and tracking measures to be taken to plug leakages/evasions;
• exports of such commodities to be allowed only against LUT with consequential refund of accumulated ITC;
• compensation cess levied on such commodities to be changed from ad valorem to specific tax based levy to boost the first stage collection of the revenue"

In context of ongoing discussion here, kindly note that said recommendations are NOT retrospective in nature but only prospective.

Note (as given at the end of above-said Press Release): The recommendations of the GST Council have been presented in this release containing major item of decisions in simple language for information of the stakeholders. The same would be given effect through the relevant circulars/ notifications/ law amendments which alone shall have the force of law.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[Amit Agrawal]

Kindly refer to Notification No. 01/2023 – Integrated Tax dated 31.07.2023, where, with effect from 01.10.2023, EXCEPT the 'goods' specified in said notification, all other goods & every service can still be exported on payment of integrated tax and on which the supplier of such goods or services can claim the refund of tax so paid.

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.