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GST Compensation Cess

Aug 30, 2017

Levy And Compensation Cess:

A Compensation Cess is charged under the Goods and Services Tax (Compensation to States) Act, 2017 for compensating states which stand to lose revenue under the GST regime. The Compensation Cess is charged on intra-state as well as inter-supplies of goods or services, including an import.

This Cess is leviable for a period of 5 years. The GST Council is authorized to extend this period. No Cess is however leviable on a composition taxpayer. Unfortunately, this benefit is available only to composition taxpayers registered under CGST Act.

Value of Supply:

Valuation of a supply, for the purposes of levy of the Compensation Cess, should be done as per Section 15 of the CGST Act. The rules issued under that Act will also be relevant in this regard.

Rate of Tax:

The Cess will be calculated at the rates notified under the Compensation Cess Act, subject to the maximum rates set out in the Schedule appended to that Act. The tax will be charged on an ad valorem basis, and will be based on the value of the supply. Thus, if a supply is chargeable to 28% tax under the IGST Act and 15% Cess under the Compensation Cess Act, the total tax burden will come to 43%. You can find HSN code/ SAC code for all your goods and services with GST Rate Finder tool You can easily find the rates of goods or services with this tool to be mention in your GST invoice.

Supplies On Which Compensation Cess has been Levied:

The Central Government has issued Notification No.1/ 2017- Compensation Cess (Rate), Notification No.2/ 2017- Compensation Cess (Rate) and Notification No.3/ 2017- Compensation Cess(Rate) which enumerate the goods and services on which the Compensation Cess is levied, alongwith the rate of tax.

Input Tax Credit:

Compensation Cess on inward supplies is creditable only against Compensation Cess liability on outward supplies. It cannot be used against CGST, SGST, IGST or UTGST liabilities.

However, there is no restriction on using Compensation Cess paid on an intra-state inward supply as credit against Compensation Cess payable on inter-state outward supply and vice versa.

Procedural Details:

For purposes of furnishing of returns and claiming refunds, except for the form to be filed, the provisions of the CGST law will apply. For all other purposes, the CGST Act (for Cess on intra-state supplies) and the IGST Act (for Cess on inter-state supplies) will be applicable.

Compensation Cess On Zero Rated Exports:

Compensation Cess, dated 26-7-2017, the Central Government has clarified:

  1. Exporters will be eligible for refund of Compensation Cess paid on goods exported by him; or
  2. No Compensation Cess will be charged on goods exported by an exporter under bond and he will be eligible for refund of input tax credit of Compensation Cess relating to goods exported.
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