What is Cess on GST? – Applicability and Rates

Priyanka Bajpayee

16 Nov, 2020

On 18th February 2017, the GST Council in its 10th meeting approved the “GST Compensation to the state to provide compensation to the States for loss of revenue due to implementation of GSTin India”. GST Cess is levied on intra-state supply of goods or services and inter-state supply of goods or services. GST Cess is a compensation Cess levied under Section 8 of The Goods and Services Tax (Compensation to State) Act, 2017.^[1] As GST Cess is a tax based on consumption, thus the state in which the consumption of goods and supply happen would be eligible.

What was the Reason Behind Implementing GST Cess?

After GST came into effect, Few States become the net exporter of the goods and services and are experiencing a decrease in the indirect tax revenue. However, the Central government with a view to compensate the States for the loss in the tax revenue has declared the Goods and Service Tax Compensation Cess which would be levied for a period of 5 years from the GST implementation.

Salient Aspects of GST Cess

The GST Cess of The Goods and Services Tax (Compensation to State) Act, 2017 provides the manner of ascertaining the amount of compensation payable to the state during the transition period of 5 years by the Central Government on account of revenue loss attributable to levy goods and services tax.

The Salient Aspects of the GST Cess are-

• To ascertain the Base year.
• To identify the revenue for the base year
• Computation of compensation and release of compensation
• Projected revenue.

The provisions related to the collection, payment return, refund, etc. have been provided in the Compensation Act. Every taxable person making a taxable supply of goods and services shall pay the amount of Cess under this Act in such a manner as provided and will apply for the refunds of such Cess paid in such form as prescribed.

Applicability of GST CESS

The applicability of GST Cess is on the variety of goods and services that are traded whether intrastate or interstate by the GST registered businesses provided it should not fall under the Composition scheme, for the following categories along with Cess rate list-

Category of Tobacco

1. Unmanufactured tobacco bearing a brand name-65%
2. Tobacco refuse, bearing a brand name-61%
3. Chewing tobacco (without lime tube)-160%
4. Filter khaini-160%
5. Jarda scented tobacco-160%
6. Chewing tobacco (with lime tube)-142%
7. Pan masala containing tobacco ‘Gutkha’-204%

 Category of other Tobacco Products

1. Cigars and cheroots-21% or Rs 4170 per thousand, whichever is higher.
2. Cigarillos-21% or Rs 4170 per thousand, whichever is higher.
3. Cigarettes of tobacco substitutes-Rs 4006 per thousand.
4. Cigarillos of tobacco substitutes-12.5% or Rs 4006 per thousand whichever is higher.
5. Other-12.5% or 4006 per thousand whichever is higher.
6. Hookah or gudaka tobacco, tobacco bearing a brand name-72%
7. Tobacco used for smoking ‘hookah’ or chilam is commonly known as hookah tobacco-17%
8. Other smoking tobacco not bearing a brand name-11%
9. Smoking mixtures for pipes and cigarettes-290%
10. Other smoking tobacco bearing a brand name-49%

Category of Motor Vehicles

1. Motor vehicles (10<persons <13)-15%
2. Small Cars (length < 4 m; Petrol<1200 cc)-1%
3. Small Cars (length < 4 m; Diesel < 1500 cc)-3%
4. Mid Segment Cars (engine < 1500 cc)-15%
5. Large Cars (engine > 1500 cc)-15%
6. Sports Utility Vehicles (length > 4m; engine >1500 cc; ground clearance > 170 mm-15%
7. Mid Segment Hybrid Cars (engine < 1500 cc)-15%
8. Hybrid motor vehicles > 1500 cc-15%
9. Hydrogen vehicles based on fuel cell tech > 4m-15%
10. Motorcycles (engine > 350 cc)-3%
11. Aircraft for personal use-3%
12. Yacht and other vessels for pleasure or sports-3%

ITC from GST Cess

The Central government on the recommendation of the Council, by notification in the official Gazette makes rules for carrying out the provisions of this Act. While the Input Tax Credit that comes from the Compensation Cess on the supply of goods or services can only be utilized towards the payment of the Compensation Cess on the supply of goods or services.

Duration of Compensation Cess

The Central Government has designed the GST Law in such a way where the Compensation Cess lasts for 5 years i.e. the Cess set to an end in July 2022. The 5-year duration gives states the time to adjust and transition to the regime. However, the government may change it based on the recommendation of the GST council. As the Cess has gone through several changes.