The Tribunal distinguished the case from zero-rated export scenarios and held that mere accumulation of Compensation Cess ITC does not automatically confer a right to cash refund under Section 54(3).
The GSTAT Lucknow Bench has allowed six departmental appeals and set aside the Order-in-Appeal that had granted refund of accumulated Compensation Cess ITC to M/s Pacific Leather Pvt. Ltd. on coal used as fuel in leather manufacturing. [Hemlata Jaiswal v. Pacific Leather P. Ltd.]
Members Santosh Kumar Srivastava (Judicial) and Arvind Kumar (Technical) held that the First Appellate Authority had placed undue reliance on Section 17(5) of the CGST Act — which does not block ITC on coal — without adequately examining the refund conditions under Section 54(3). The Tribunal emphasized that admissibility of ITC, its utilisation, and its refund are separate statutory concepts governed by different provisions.
The leather manufacturer had accumulated Compensation Cess ITC because coal used as fuel attracted Compensation Cess, while the finished leather products sold domestically did not. The refund claims, filed under the inverted tax structure category, were rejected by the Proper Officer but allowed by the First Appellate Authority.
The Tribunal noted that Circular No. 45/19/2018-GST and Circular No. 125/44/2019-GST specifically address refund of Compensation Cess ITC in the context of zero-rated supplies, not domestic supplies. The respondent's reliance on judgments from the Gujarat and Jharkhand High Courts was distinguished because those cases concerned exports, not domestic outward supplies of leather products.
The original refund rejection orders were restored.
2026-juristway.com-3027-GSTAT(Lucknow)-GST | GSTAT Lucknow | APL/70/LCK/2026 (and 5 connected appeals) | 13.10.2026
