CHAPTER XXII

Compensation cess in GST

Introduction

Goods and Services Tax (Compensation to States) Act, 2017 was enacted to
levy Compensation cess for providing compensation to the States for the
loss of revenue arising on account of implementation of the goods and
services tax with effect from the date from which the provisions of the
Central Goods and Services Tax Act is brought into force
(01/07/2017), for a period of five years or for such period as may be
prescribed on the recommendations of the GST Council.

The compensation cess on goods imported into India shall be levied and
collected in accordance with the provisions of section 3 of the Customs
Tariff Act, 1975, at the point when duties of customs are levied on the
said goods under section 12 of the Customs Act, 1962, on a value determined
under the Customs Tariff Act, 1975.

Compensation Cess will not be charged on goods exported by an exporter
under bond and the exporter will be eligible for refund of input tax credit
of Compensation Cess relating to goods exported. In case goods have been
exported on the payment of Compensation Cess the exporter will be eligible
for refund of Compensation Cess paid on goods exported by him. Compensation
cess shall not be leviable on supplies made by a taxable person who has
decided to opt for composition levy.

Input Tax Credit

The input tax credit in respect of compensation cess on supply of goods or
services can be utilised only towards payment of the compensation cess on
supply of goods or services.

Valuation if Cess to be levied on value

In case the compensation cess is chargeable on any supply of goods or
services or both with reference to their value, then for each such supply,
the value has to be determined under section 15 of the Central Goods and
Services Tax Act, 2017.

Laws and Rules applicable

The provisions of the Central Goods and Services Tax Act, 2017 and the
rules made thereunder, including those relating to assessment, input tax
credit, non-levy, short-levy, interest, appeals, offences and penalties,
shall apply in relation to the levy and collection of the cess on the
intra-State supply of goods and services. Similarly, in case of inter-State
supplies the provisions of the Integrated Goods and Services Tax Act, and
the rules made thereunder will apply.

Conclusion

The compensation cess is a cess that will be collected on the supply of
select goods and or services or both till 1 st July
2022. The cess will compensate the states for any revenue loss on account
of implementation of GST. This cess will not be payable by exporters
and those persons who have opted for compensation levy. The input tax
credit of this cess can be only used to pay compensation cess and not
the other taxes like CGST, SGCT or IGST.