GST Compensation Cess

Tally Solutions |Updated on: June 28, 2022

What is GST Compensation Cess?
Why is GST Compensation Cess levied?
Who is liable to collect GST Cess?
Which goods will attract GST Cess?
What is the GST Cess Rate applicable on these goods?
How to calculate GST Cess?
Can input tax credit be availed on GST Cess paid on inward supplies?

What is GST Compensation Cess?

GST Compensation Cess is a levy which will be applicable in addition to the regular GST taxes (CGST + SGST/UTGST on intrastate supplies and IGST on interstate supplies). GST Cess will be levied on supply of certain notified goods – mostly belonging to the luxury and demerit category. In order to understand what is GST Cess and the GST Cess meaning, one needs to understand the primary purpose why the GST Council has instituted this additional levy.

Why is GST Compensation Cess levied?

The GST Cess is levied to compensate states who may suffer any loss of revenue due to the implementation of GST, as per the provisions of the GST Compensation Cess Act. As GST is a consumption-based tax, the state in which consumption of goods or services happens will be eligible for the revenue on supplies. As a result, manufacturing states like Maharashtra, Tamil Nadu, Gujarat, Haryana and Karnataka are expected to face a decrease in revenue from indirect taxes.

In order to compensate these states for this loss of revenue, GST Cess will be levied on the supply of certain goods, which will be distributed to these states, to bridge any potential tax revenue gaps. The GST Cess will be levied for the first 5 years of the GST regime.

Who is liable to collect GST Cess?

All taxable persons supplying the notified goods (except composition taxpayers) should collect and remit the GST Cess.

Which goods will attract GST Cess?

Items	GST Cess Ceiling
Coal	INR 400 / tonne
Pan Masala	60%
Aerated Drinks	15%
Motor vehicles of engine capacity exceeding 1200cc and of length exceeding 4000 mm	15%
Motor vehicles of engine capacity not exceeding 1500 cc	17%
Motor vehicles of engine capacity exceeding 1500 cc other than SUV’s	20%
Motor vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility vehicles	22%
Diesel driven motor vehicles of engine capacity not exceeding 1500 cc and of length not exceeding 4000 mm	3%
Motorcycles of engine capacity exceeding 350 cc	3%
Cigarettes Other than filter not exceeding 65 millimetres	5% + Rs. 2076 per thousand
Cigarettes Other than filter exceeding 65 millimetres but not exceeding 70MM	5%+ Rs. 3668 per thousand
Filter Cigarettes not exceeding 65 millimetres	5% + Rs. 2076 per thousand
Filter cigarettes exceeding 65 millimetres but not exceeding 70MM	“5% + Rs. 2747 per thousand”
Filter cigarettes exceeding 70 millimetres but not exceeding 75 MM	5% + Rs. 3668 per thousand
Other cigarettes containing tobacco	36% + Rs. 4170 per thousand

What is the GST Cess Rate applicable on these goods?

The GST Cess rate list for the above-mentioned goods, is available here .

How to calculate GST Cess?

The GST Cess should be calculated on the transaction value. The GST Cess should be levied in addition to the GST taxes i.e. CGST + SGST/UTGST in case of intrastate supplies and IGST in case of interstate supplies.

Can input tax credit be availed on GST Cess paid on inward supplies?

Yes, input tax credit can be availed on GST Cess paid on inward supplies of the above mentioned notified goods. However, the credit of GST Cess paid can be utilized only towards payment of the GST Cess liability.