GST Compensation Cess is the cess levied on certain notified goods. It is charged in addition to IGST, CGST and SGST. Further, the provisions for charging GST Cess are listed in the Goods and Services Tax (Compensation to States) Act, 2017.
The purpose of levying GST Cess is to compensate the states that incurred a loss in revenues due to the implementation of the GST Act. Since GST is a consumption-based tax, the state in which the goods or services are consumed would be eligible for the revenue from GST.
Thus, the manufacturing states i.e. Gujarat, Haryana, Karnataka, Maharashtra and Tamil Nadu would lose their revenue. As a result, GST Compensation Cess was introduced to distribute its revenue amongst the manufacturing states.
Features of GST Compensation Cess
- Applicability – 5 years
It would be levied for a period of five years (up to 01/07/2022) from the date of implementation of GST i.e. 01/07/2017. The GST Council can extend this time period
- Notified Goods & Services
Taxable persons selling notified goods are liable to collect and pay GST Cess. You can view the list of notified goods and services here
- Tax Calculation
Calculate GST Cess on the transaction value of goods or services. Cess is levied in addition to CGST + SGST/UTGST in case of intra-state sales and IGST in case of inter-state sales
- Not charged on Exports
Taxpayer cannot charge Cess on goods exported out of India. The exporter can claim a refund of the input tax credit of cess paid on purchases
- Not charged to Composite Dealers
Taxpayer cannot charge Cess to dealers registered under the Composition Scheme
- Input Tax Credit
Taxpayer can use Input Tax Credit of Cess for payment of Cess liability on sales. You cannot use Input Tax Credit of Cess for payment of output CGST, SGST or IGST
Yes, taxpayer can claim Input Tax Credit of the GST Compensation Cess paid on inward supplies or purchases. However, the taxpayer can adjust Input Tax Credit of Cess against Output tax liability of Cess only. Taxpayer cannot adjust ITC of Cess with output tax liability of IGST, CGST, SGST or UTGST.
* Sin Goods such as Cigarattes and Pan Masala
* Other Goods such as Aerated Drinks, Coal, motor vehicles with specified engine capacity
You can refer the entire list on cbic.gov.in
Goods/sectors that are out of the GST ambit include alcohol and specified petroleum products like petroleum crude, high-speed diesel, motor spirit, aviation turbine fuel and natural gas. Alcohol for human consumption continues to attract state excise duty and VAT. Tobacco and tobacco-based products attract both excise duty and GST. Taxes such as stamp duty, toll tax, road tax, electricity duty etc. are not part of GST.
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Customs duty and cess as applicable along with IGST+ GST compensation cess. IGST and GST compensation cess shall be paid after adding all customs duty and customs cess to the value of imports.
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