In a landmark judgment dated October 28, 2025, the Supreme Court upheld the Gujarat High Court’s ruling allowing a refund of unutilized Input Tax Credit (ITC) of GST Compensation Cess.
Background
The assessee was engaged in the export of manufactured goods. The inputs used in the manufacturing process included coal, on which GST Compensation Cess had been paid. Since no compensation cess is leviable on export supplies, the cess component accumulated as unutilized ITC.
Key Issue
The central issue was whether refund of unutilized ITC of Compensation Cess is permissible under the GST law when the exports are made with payment of Integrated GST (IGST).
Court’s Ruling
The Supreme Court dismissed the Revenue’s contention—based on departmental circulars—that refund of such unutilized cess was barred in cases where exports were made on payment of IGST.
The Court held that:
- Compensation Cess is part of the input tax credit mechanism, and once accumulated on account of zero-rated exports, it is eligible for refund under Section 54 of the CGST Act.
- The circulars restricting such refunds cannot override the statutory provisions of the Act.
Impact
This ruling provides a major relief to exporters in sectors like coal-based industries, power generation, and manufacturing, where Compensation Cess often accumulates without a utilization route.
It also reinforces that statutory rights to refund cannot be curtailed by executive circulars.
Case Reference
Union of India vs. Mohit Minerals Pvt. Ltd. (2025 SC) — affirming the Gujarat High Court’s view.