GST Compensation Cess – Key Points

By | November 28, 2016

GST Compensation Cess

Government of India has come out with GST (Compensation to the States for loss of revenue) bill, 2016 on 25th day of November, 2016. Let us understand the GST Compensation Cess introduced in this bill :-

Background of GST Compensation Cess:

  • Since  GST is a destination cum consumption based tax. Hence the revenue from these taxes would occur to the state where the goods are ultimately consumed.
  • Till now the levy of VAT and CST was an origin based tax i.e. the revenue would be going to the treasury of originating state.
  • Howevewr after Introduction of GST, there may be some losses to few manufacturing state like Gujarat and Maharashtra, on the other hand consuming state like Bihar and UP will be in benefit.
  • So in order to compensate states from this kind of probable loss, in the Constitution (101st Amendment) Act, 2016, section 18 has been introduced which read as “Parliament shall, by law, on the recommendation of the Goods and Services Tax Council, provide for compensation to the States for loss of revenue arising on account of implementation of the goods and services tax for a period of five years”.
  • Therefore in order to compensate states for loss of revenue, a new cess “GST Compensation Cess” has been introduced by the GST Council which will be levied on Luxury items like high-end cars and demerit goods including tobacco, pan masala and aerated drinks for this period of 5 years.

Levy and Collection of GST Compensation Cess:

  • Section 8 of “GST (Compensation to the States for loss of revenue) bill, 2016” (hereinafter called as compensation bill), is the charging section for levy of GST Compensation Cess.
  • Applicability :- It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint in this behalf.
  • Objective and Period  :- For the purpose of providing compensation to the States for loss of revenue arising on account of implementation of the GST for a period of 5 years, GST Compensation Cess will be levied and collected by Central Government.
  • Coverage :- GST Compensation Cess shall  extends to the whole of India.
  • Items  Covered :- On the recommendation of GST Council, Central Government will prescribe the supplies of goods and services, on which GST Compensation Cess will be levied.However as per the press conference held by Hon’ble Chairman of GST Council, the aforementioned Cess will be levied on Luxury items like high-end cars and demerit goods including tobacco, pan masala and aerated drinks in a way that the total incidence of tax remains at almost the current level.
  • Rate of Cess : The rate of aforementioned cess will be notified by the Government.
  • Exemption :- However no such cess shall be payable on such supplies made by a dealer who has been permitted to pay tax under composition scheme under section 8 of CGST Act, 2016. i.e. a composition dealer need not to pay this cess.

Valuation for the purpose of levying GST Compensation Cess:

  • Valuation :- Value for the purpose of levying the GST Compensation cess will be same as determined under Section 15 of CGST Act, 2016.
  • Items Covered :- If a particular supply of goods or services has been notified, the aforementioned cess will be levied on all supplies including import of goods and services, and those supplies on which tax is payable on reverse u/s 7(3) of CGST Act.
  • The value of a supply of goods and/or services shall be the transaction value, that is the price actually paid or payable for the said supply of goods and/or services where the supplier and the recipient of the supply are not related and the price is the sole consideration for the supply.
  • Where the value cannot be determined under aforesaid manner, the same shall be determined in the manner prescribed by government in relevant rules to CGST law

Returns, Payment and Refunds  of GST Compensation cess:

  • Along with the normal returns to be filled under CGST Act, 2016, a return for the purpose of the cess need to be furnished in prescribed formats.
  • Manner of payment of cess will also be prescribed by government in due course of time by rules.
  • Manner of filing application for refunds of cess paid will be prescribed.
  • Except for the separate formats to be filed, the provisions of CGST Act, 2016 and rules made thereafter, shall apply in relation to levy and collection of GST Compensation cess.

Availability of Credit of GST Compensation Cess paid:

  • Amount paid as GST Compensation cess will be available as input tax credit subject to compliance of all other credit related conditions.
  • However Input tax credit in respect of GST Compensation Cess shall be utilized only towards payment of GST Compensation Cess on supply of goods and services leviable under section 8 of the compensation bill.
  • That means credit of cess cannot be utilized against CGST or SGST or IGST payable on outward supply. But can be utilized against cess payable by the supplier.

Applicability of other provisions to GST Compensation cess

:

  • All other provision of CGST Act, 2016 and relevant rules, including those relating to assessment, ITC, demand, interest, appeals, offences and penalties, shall apply mutatis mutandis to levy of GST Compensation cess on intra-state supply.
  • All other provision of IGST Act, 2016 and relevant rules, including those relating to assessment, ITC, demand, interest, appeals, offences and penalties, shall apply mutatis mutandis to levy of GST Compensation cess on inter-state supply.

 


[Editor Note : New The Draft Model GST Law, Draft IGST Law and Draft Compensation Law which would be considered by the GST Council for approval are placed in the public domain for information of trade, industry and other stake holders. on 25.11.2016 :-

Draft Model GST Law,

Draft IGST Law and

Draft Compensation Law ]

Earlier, the Draft Model GST Law was put in public domain in the month of June, 2016 for comments  Download:  Old Draft Model GST Law -june 2016 ]

Taxable person- Section 10 of New Draft Model GST Law

GST compliance rating- Section 138 of New Draft Model GST Law

Anti-profiteering Measure – Section 163 of New Draft Model GST Law

Schedule V of New Draft Model GST Law -Person Liable to be Registered

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