The Gujarat High Court has observed that supplies to merchant exporters also qualify as ‘export of goods’. It was thus held that the assessee manufacturer is not liable to pay compensation cess at the rate of 160% on the supply of goods, i.e. branded tobacco products, to the merchant exporters for exports.
The Court for this purpose noted that no tax was being paid by the assessee under the earlier regime before the introduction of GST, and that after GST the basic concept of export of goods without payment of duty or tax is continued. CBIC Circular No. 37/11/2018-GST dated 15 March 2018 and Supreme Court’s decisions in Amritsar Sugar Mills Co. Ltd. [AIR 1966 SC 1242] and Lord Krishna Sugar Mills [(1966) 18 STC 498 (SC)], were relied upon to state that supply by the assessee to the merchant exporters would qualify as export supply.
Also, GST Council’s 22nd Meeting wherein the Council had recommended granting exemption from CGST and IGST in such cases of supply to merchant exporters, and the consequential notifications issued by the Ministry, were relied upon by the Court while it was of the view that notifications issued under the provisions of CGST and IGST Act are required to be applied for levy of compensation cess also.
It was observed that Section 11 of the GST (Compensation to States) Act, 2017 provides for applicability of the provisions of CGST and IGST Act mutatis mutandis for levy of cess as per Section 8 thereof and thus there cannot be any discrepancy of levy of GST, IGST and Compensation Cess.
Effect of revenue neutrality, in as much as the merchant exporters will get refund of the cess paid as per the provisions of Section 16 of the IGST Act read with Section 54 (3) of the CGST Act, was also noted.
Disposing of the petitions in Sopariwala Export Pvt. Ltd. v. Joint Commissioner, the Court also noted that movement of goods from the assessee’s factory to the port for export and then to outside India was integrally connected and therefore was part and parcel of the same transaction.
Further, noting that the GSTIN of the assessee and the tax invoice number were mentioned in the shipping bill by the merchant exporter, the Court held that as per Section 2(5) of the IGST Act, supply of goods to merchant exporters is to be considered as export of goods.
The High Court hence strongly urged the GST Council to consider the issue of granting exemption from the levy of Compensation Cess at par with CGST and IGST, as recommended by it in its 22nd Meeting, to see that there is no working capital blockage for manufacturer or exporters including EOUs.
The assessee was represented by Shri. V. Sridharan, Senior Advocate and Co-founder of LKS along with the LKS team.