Domestic Supply of goods is exempted supply, hence would not considered in denominator (Adjusted turnover) for computing cess refund on export - HC

Goods supplied domestically which attract nil rate of cess should be construed as exempt supplies and therefore, deserves to be excluded from the calculation of Adjusted Total Turnover for computing refund of unutilised Cess in terms of Rule 89 (4)- Calcutta HC

The fact of the matter before Justice Nizamuddin of Calcutta HC was as to Whether domestic supply of finished goods which are not liable to Compensation cess are to be reckoned as exempted supplies and not to be considered in the value of adjusted turnover for computing refund in terms of Rule 89 (4) of the CGST Rules.?

As per Rule 89, adjusted turnover should exclude exempted supplies for?calculating refund of unutilised credit including cess. Since “exempt supply” has not been defined under the Cess Act, definition of exempt supply contained in the CGST Act shall apply mutatis mutandis as specified in the Cess Act.?

CGST authorities have ignored the expression "mutatis mutandis” appearing in Cess Act and have not given any justification as to why domestic supply of finished goods in which cess is not applicable, should not be treated as exempted supplies.

The Hon'ble Calcutta High Court hold that the appellate authority has rightly considered that domestic supply of finished goods, which are not liable to Compensation Cess, are to be reckoned as exempted supplies and be excluded to arrive at the adjusted turnover for computing refund of unutilised Cess in terms of Rule 89(4) of the CGST Rules.

Our Comments - Applying above formula the quantum of Cess refund against physical exports would increase to the optimum level. The department has challenged the said order before the Division Bench in?Culcutta High Court. However, in our understanding the writ bench judgement looks judicious and in all lively event may sustain - Complied by Team BT Associates ([email protected])