Supreme Court Issues Notice On Plea Over Denial Of Use Or Refund Of Compensation Cess ITC After Coal Cess Scrapped

The Supreme Court on Monday issued notice on a writ petition challenging the denial of utilisation or refund of accumulated Compensation Cess input tax credit (ITC) after the cess on coal was scrapped.

The petition, filed by Carbon Resources Pvt. Ltd., claims the change has left the company with around Rs 23 crore in compensation cess credit that has become unusable because no mechanism was provided to either utilise or refund it.

A bench comprising Chief Justice of India Surya Kant and Justices R. Mahadevan and Joymalya Bagchi issued notice to the Union government, tagged the matter with a similar pending petition, and posted the matter next on March 25, 2026.

The plea challenges Notification No. 2/2025-Compensation Cess (Rate) dated September 17, 2025, through which the government nil-rated compensation cess on coal following recommendations of the GST Council. The policy change effectively merged the cess component into GST by increasing the GST rate on coal from 5% to 18%.

According to the petition, the company, engaged in manufacturing and trading carbon products, had paid compensation cess on imported coal prior to the levy being withdrawn and had accumulated ITC of about ₹23 crore across multiple states.

However, once the cess was nil-rated, there was no longer any output cess liability against which the credit could be utilised. The petition states that in the absence of any transitional provision or refund mechanism, the accumulated credit has become stranded and unusable.

The petition raises several constitutional and fiscal questions, including:

a. Whether a lawfully availed input tax credit constitutes a vested right under Section 16 of the CGST Act.

b. Whether denial of utilisation or refund of such credit after the cess was abolished results in retention of tax without authority of law, violating Article 265 of the Constitution.

c. Whether extinguishing accumulated credit without transitional provisions violates Articles 14, 19(1)(g) and 300A of the Constitution by imposing an unforeseen financial burden and depriving taxpayers of property.

The petitioner has sought directions to either allow transfer of accumulated compensation cess credit to the CGST or IGST ledger or permit refund of the credit under Section 54 of the CGST Act.

After hearing senior counsel appearing for the petitioner, the Supreme Court issued notice to the Union of India and tagged the case with another writ where a similar challenge is pending.

For Petitioner: Senior Advocate Balbir Singh, Advocate-on-Record Malvika Kapila, Advocates Tanwangi Shukla, Harbani Shinh, Anushree Menon, Apoorva Jain, Disha Jham and Vedant Kohli.