GST is a consumption based tax i.e. tax is chargeable on consumption of goods and services. It means revenue for this tax is generated in place where the goods & services are consumed. For this instance the states that where the major manufacturing hub who used to supply the goods to other state feared to face a loss of revenue through this regime, and to counter this government of India introduced a GST compensation cess valid for a period of five years for these states.
Example: Value of a tonne of Briquittes is 3000 per tonne , GST rate is 5%, and GST compensation is Rs. 400 per tonne. Then if briquette is sold for Rs. 3000 (excluding GST) then gst compensation cess should be paid additionally of Rs. 400 per tonne, total gst liability would here be 5% of 3000 + 400 = 550 total invoice would be 3000 + 550 = 3550.
Liability to collect compensation cess
A list of goods & services are notified by the government which would qualify for the compensation cess. Any registered taxpayer engaged in supply of these notified goods & services has the authority to collect GST compensation cess. (This would exclude the taxpayer opted for a composition scheme under section 10 of CGST Act). The compensation cess will be collected and would be deposited to the credit of government.
GST Compensation Cess Rates
Compensation Cess Rates as on 27.07.2018 Click Here
Later amendments in Compensation Cess Rates
|01/2019-Compensation Cess (Rate),dt. 29-06-2019|
|02/2019-Compensation Cess (Rate),dt. 30-09-2019|
|03/2019-Compensation Cess (Rate),dt. 30-09-2019|
Calculation of compensation cess
GST compensation cess is always be calculated on taxable value of goods and services supplied. It will be levied on whole value excluding GST.
Example- Suppose pan masala is supplied at Rs.10,000 (taxable value) gst rate-18%, GST compensation rate -12%.
In this, GST would be charged @18% of 10,000 i.e 1800
Compensation cess would be charged@12 % of 10,000 i.e. 1200
Total invoice amount raised would be Rs. 13,000(10000+1800+1200)
In this the buyer taxpayer could take a total of Input tax credit on both gst amount and gst compensation cess amount.
Input tax credit for compensatory Cess
Input tax credit is made available to the registered tax payer and he can successfully claim Tax credit on the amount of compensation cess. The input tax credit on compensation cess would only be sett off against output compensation cess (i.e not on ouput CGST, output SGST, ouput IGST).
Example – if a taxpayer has paid compensation cess of Rs. 1,000 and he has made an outward supply and collected Rs. 1500 as compensation cess , then he can claim Rs. 1,000 as input credit and can pay the balance of Rs. 500.
Distribution of compensation cess among the states
The compensation cess so collected by the government is distributed among the major manufacturing states, who had suffered revenue loss due to this new GST act 2017.
Process for distribution of:
- Revenue collected during the financial year 2016-2017 is considered as the base revenue of the major manufacturing state
- Growth rate in the major manufacturing state is assumed to be 14% per annum, and according to this projected revenue is calculated for a financial year that the relevant state could have earned in absence of the GST act.
- Provisional compensation is calculated and distributed by the government as:
Projected revenue earned by the state: xx
Less: Actual revenue earned: xx
Compensation payable: xx
Compensation payable so calculated will be distributed to the major manufacturing states every two months.
Any surplus pending at the end of five years will be distributed between Centre & State.
Refund of Compensatory Cess to Exporters
Refund of Cess will be available to Exporters as in case of refund of IGST. No cess is charges if LUT available with Exporter.
In case of inverted duty structure no cess refund allowed. Means where the cess on input is higher than the cess on output supplies. (Refer Notification No. 2/2019).
Due to Covid-19, the central govement has not paid compensation payment to the states, which was guaranteed compensation for loss of revenue till FY 2022.
GST council meeting is going on, this issue to be discussed there.
Hope you have got all information regarding GST compensation Cess. For any query please comment.