Compensation cess has primary objective to give financial assistance due to revenue loss which state has incurred during implementation of the GST in its initial years. They are applicable on the specific goods such as demerit goods, tobacco products, aerated drinks, automobiles, luxury items and coal. Financial burdens are not faced by the states.
On which item compensation cess under GST will be calculated and how much can be complex question. Get help from Profesional Utilities to solve any problem related to the GST.
Table Of Content
What is the compensation cess?
GST Compensation cess is the tax levied to compensate the region or state in the implementation of goods and services for the loss in the revenue which is incurred. This is imposed on the goods or services those are demerit or luxury in nature like coal, automobiles, tobacco and aerated beverages.
GST Compensation cess example
On final product GST payable is Rs. 500/-. Rs 300/- is paid on the purchase of the raw material and input tax credit is 300/-. At the time of supply GST paid is Rs. 200/-.
GST Cess rate
Under GST Act 2017 there are various goods and their respective cess rate are mentioned below -
| Goods | GST Compensation cess |
| Lemonade | 12% |
| Tobacco refuse (bearing a brand name) | 61% |
| Pan Masala | 60% |
| Aerated Waters | 12% |
| Unmanufactured tobacco – without lime tube (bearing a brand name) | 71% |
| Unmanufactured tobacco – with lime tube (bearing a brand name) | 61% |
| Filter khaini | 160% |
| Motor vehicles with the engine capacity up to 1500 CC | 17% |
| Homogenised or reconstituted tobacco, bearing a brand name | 72% |
| Yacht and other vessels either for sports or for pleasure | 3% |
| Motor vehicles for the transport of 13 persons or less (including driver) | 15% |
| Motor vehicles with the engine capacity up to 1500 CC | 17% |
| Cut tobacco | 20% |
| Snuff | 72% |
| All goods, other than pan masala containing tobacco ‘gutkha’, not bearing a brand name | 89% |
| Pan masala (gutkha) containing tobacco | 204% |
| Coal, ovoids, briquettes, and similar solid fuels manufactured from lignite, coal, whether or not agglomerated, excluding jet, peat (including peat litter), whether or not agglomerated | Rs. 400 per tonne |
| Petrol, liquefied petroleum gas (LPG) or compressed natural gas (CNG) driven motor vehicles of engine capacity not exceeding 1200cc and of length not exceeding 4000mm | 1% |
| Cheroots and Cigar | 21% or 4170 per thousand, whichever higher |
| Cigarillos | 21% or Rs. 4170 per thousand, whichever is higher |
| Jarda scented tobacco | 160% |
| Automobiles with a spark-ignition internal combustion reciprocating piston engine and an electric motor, or with a compression-ignition internal combustion piston engine [diesel or semi diesel] and an electric motor, but excluding ambulances, three-wheelers, and vehicles with an engine capacity not exceeding 1500cc and a length not exceeding 4000 mm. | 15% |
| Filter cigarettes of length (including the length of the filter, the length of filter being 11 millimetres or its actual length, whichever is more) not exceeding 65 millimetres | 5% + Rs. 2076 per thousand |
| Diesel driven motor vehicles of engine capacity not exceeding 1500cc and of length not exceeding 4000mm | 3% |
| Filter cigarettes with a length that is greater than 65 millimetres but not greater than 70 millimetres (including the length of the filter, which is 11 millimetres). | 5% + Rs. 2747 per thousand |
| Aircraft, helicopter, airplane for personal use | 3% |
| Yacht and other vessels either for sports or for pleasure | 3% |
| Homogenized/ reconstituted tobacco | 72% |
Different types of the GST Compensation cess
There are many types of the GST Compnesation cess as mentioned below -
- Road and Infrastructure Cess
- Cess on Crude Oil
- Health and Education Cess
- Construction worker welfare cess
- GST Compensation cess
- National calamity Contigent Duty
Difference of the Cess and other taxes
Main difference between cess and other taxes are mentioned below -
- Different cess is imposed levied by the government on different taxes such as GST, Income tax and excise duty etc that is the basic difference between tax and cess.
- Cess is used for the development program or particular improvement. The unused cess that is collected is spend in another financial year and this is not available in other cases.
- Cess charges can be easily abolish and introduced. Whereas changes in other taxes are intiated by the IT Law Amendment.
- Cess is need not to be shared by central government with state government unlike other taxes.
How to calculate cess on GST?
Under GST Act value of the supply depend on the amount of the GST that is paid in transaction. As per the guide line of GST Act the primary factor of the cost of the product or services provided the amount paid or payable for the provision of goods or services when there is no connection between the provider and the recipient of the supply. The GST cess is calculated.
In case of the imported goods in india. The cess is collected and levied along with the IGST and custom duty. Under section 15 on the prescribed rate of the transaction value compensation cess is calculated.
For example
In India Goods are imported for value of Rs. 1000/-. 10% is custom duty payable and 18% is GST Payable. Th
Basic Customs Duty @10% = INR 100/-
IGST payable @18% = INR 198
Assessable/ transaction value = INR 1,000
Value for levying IGST = INR 1,100
The amount of INR 1,100 will be used to calculate the Compensation Cess. The Compensation Cess GST must be computed on the value before GST, it is very important to remember this. The IGST is not subject to cess.
Conclusion
GST Compnesation cess is to create additional revenue to compensate the loss incurred by the state or region during implementation of the goods and service tax system. On certain goods and services which are deemed to be of demerit or luxury in nature such as coal, automobiles, tobacco and many other are taxed.
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Frequently Asked Questions
What are the requirements and eligibility for Section 16 of CGST act of the input tax credit?
In section 49 conditions are prescribed the manner or way in which every registered person has the right to claim an input tax credit for any supplies of goods or services or both that are used or intended to be used in the course or advancement of their business, subject to any conditions and restrictions.
What types of input tax credits are eligible and ineligible?
ITC utilised for commercial reasons will be deemed eligible ITC, and those used for other purposes—aside from blocked credit, which is specifically granted separately—will not be eligible to claim as ITC. Whether the same is utilised for taxable or exempt supplies determines whether the ITC is eligible.
What does the CGST Act 2017"s Section 16 2)(D mean?
Under Section 39: The fundamental requirements for claiming an input tax credit are laid out in Section 16(2) of the CGST Act 2017. It states clearly that, in addition to the other requirements, the recipient may only claim credit if the provider has actually paid tax to the government.
What consequences could come from claiming ineligible ITC?
It is clear from the above that if ITC is improperly claimed or used, a penalty is due. Therefore, even if ITC is improperly claimed but not used, a penalty of 10% or 100%, as appropriate, will be assessed.08-Oct-2022.
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