GST Compensation Cess

GST Cess is an additional tax levied by Indian government to enable states cope up with any financial setbacks due to new GST regime. This tax applies to both goods and services sold within a state as well those traded across the state borders. The primary aim of GST Cess is ensuring states do not suffer from loss due changes occasioned by introduction of GST. This paper will clarify on where GST Cess is applied, its cost and how it is arrived at.

Why is the GST cess charged ?

Since GST is consumption-based i.e., where goods and services are located, taxes would accrue to states in which such commodities are consumed. All of which suggest that some states that use to be net exporters in terms of saleable products may later find themselves disadvantaged when it comes to collection of taxes because they will be taxed less than before. To offset this decrease in revenue flow from central government introduced GST compensation cess.This extra taxation will however only last five years after the introduction of Goods and Services Tax (Compensation to State) Act 2017 this way those counties retain their financial bases.

Usage of GST cess

All the money collected from the GST Compensation Cess goes into a special fund called the Goods and Services Tax Compensation Fund. This fund is used to make up for the loss of tax revenue that states might face due to GST. If there’s any money left in the fund after the 5-year period, it will be split equally between the Central Government and the State Governments. The State Governments will get their share based on their tax revenues from the previous year.

Applicability

GST Cess applies to certain goods and services that the Central Government has listed. It covers both goods and services sold within a state and those sold between states. Most businesses, except those using a special simplified tax scheme, are required to collect and pay this extra tax. The following items are subject to GST Cess:

Pan Masala
Tobacco products and substitutes
Coal and similar solid fuels made from coal
Fizzy drinks
Cars and other vehicles mainly used to transport people (excluding those that carry ten or more people, including the driver), such as station wagons and race cars
Any other items the government may add to the list in the future

How to Calculate ?

In case the goods or service attracts GST cess, cess must be calculated on the basis of the taxable value of the supply and as provided in the GST cess rate schedule. In case GST cess is applicable on goods imported into India, then cess must be levied and collected along with the IGST and customs duty.For example, if the assessable value of goods imported into India is Rs. 200/-, the GST rate is 18%, and customs duty is 10%.

Then IGST tax payable would be calculated as:

Assessable Value= Rs. 200/-
Basic Customs Duty (BCD) = Rs. 20/-
Value for the purpose of levying IGST = Rs. 220/-
GST – Integrated Tax = 18% of Rs.220/- = Rs. 39.6
Total Taxes = Rs. 59.80

If the goods attract GST Compensation Cess, then GST Compensation Cess would be levied on Rs. 220/-, as Compensation Cess is not levied

GST cess rate IGST.

Name of Good or Service	HSN Code	GST cess
Pan Masala	21069020	60%
Aerated waters, containing added sugar or other sweetening matter or flavoured
Aerated waters	22021010	12%
Lemonade	22021020	12%
Others	22021090	12%

GST cess rate on Tobacco and Tobacco Products

Tobacco and Tobacco Products
Unmanufactured tobacco bearing a brand name	2401	65%
Tobacco refuse, bearing a brand name	2401 30 00	61%
Chewing tobacco (without lime tube)	2403 99 10	160%
Chewing tobacco (with lime tube)	2403 99 10	142%
Filter khaini	2403 99 10	160%
Jarda scented tobacco	2403 99 30	160^
Pan masala containing tobacco ‘Gutkha’	2403 99 90	204%

GST cess rate on Cigarettes

Cigarettes
Non-filter
Not exceeding 65 mm	2402 20 10	5% + Rs.1591 per thousand
Exceeding 65 mm but not 70 mm	2402 20 20	5% + Rs.2876 per thousand
Filter
Not exceeding 65 mm	2402 20 30	5% + Rs.1591 per thousand
Exceeding 65 mm but not 70 mm	2402 20 40	5% + Rs.2126 per thousand
Exceeding 70 mm but not 75 mm	2402 20 50	5% + Rs.2876 per thousand
Others	2402 20 90	5% + Rs.4170 per thousand

GST cess rate on other tobacco products

Other Tobacco Products
Cigar and cheroots	2402 10 10	21% or Rs. 4170 per thousand, whichever is higher
Cigarillos	2402 10 20	21% or Rs. 4170 per thousand,whichever is higher
Cigarettes of tobacco substitutes	2402 90 10	Rs.4006 per thousand
Cigarillos of tobacco substitutes	2402 90 20	12.5% or Rs. 4,006 per thousand whichever is higher
Other	2402 90 90	12.5% or Rs. 4,006 per thousand whichever is higher
Hookah’ or ‘gudaku’ tobacco bearing a brand name	2403 11 00	72%
Tobacco used for smoking ‘hookah’ or ‘chilam’	2403 11 00	17%
Other smoking tobacco not bearing a brand name.	2403 11 90	11%
Smoking mixtures for pipes and cigarettes	2403 19 10	290%
Other smoking tobacco bearing a brand name	2403 19 90	49%
Other smoking tobacco not bearing a brand name	2403 19 90	57%
“Homogenised” or “reconstituted” tobacco bearing a brand name	2403 91 00	72%
Preparations containing chewing tobacco	2403 99 20	72%
Snuff	2403 99 40	72%
Preparations containing snuff	2403 99 50	72%
Tobacco extracts and essence bearing a brand name	2403 99 60	72%
Tobacco extracts and essence not bearing a brand name	2403 99 60	65%
Cut tobacco	2403 99 70	20%
All goods, other than pan masala containing tobacco ‘gutkha’, bearing a brand name	2403 99 90	96%

GST cess rate on other tobacco products

Other Products
Coal; briquettes, ovoids and similar solid fuels manufactured from coal.	2701	Rs.400 per tonne
Lignite, whether or not agglomerated, excluding jet	2702	Rs.400 per tonne
Peat (including agglomerated)	2703	Rs.400 per tonne

GST cess rate on motor vehicles

Motor Vehicles
Motor vehicles (10<persons <13)	8702	15%
Small Cars (length < 4 m ; Petrol<1200 cc )	8703	1%
Small Cars (length < 4 m ; Diesel < 1500 cc)	8703	3%
Mid Segment Cars (engine < 1500 cc)	8703	15%
Large Cars (engine > 1500 cc)	8703	15%
Sports Utility Vehicles (length > 4m ; engine > 1500 cc; ground clearance > 170 mm)	8703	15%
Mid Segment Hybrid Cars (engine < 1500 cc)	8703	15%
Hybrid motor vehicles > 1500 cc	8703	15%
Hydrogen vehicles based on fuel cell tech > 4m	8703	15%
Motorcycles (engine > 350 cc)	8711	3%
Aircraft for personal use.	8802	3%
Yacht and other vessels for pleasure or sports	8903	3%

Conclusion

In conclusion, GST Cess is an extra tax introduced to support states that might lose revenue due to the new GST system. It applies to certain goods and services, such as tobacco and luxury cars, with the money collected going into a special fund to help cover state losses. After five years, any remaining funds will be shared between the central and state governments.

Also Read: Navigating GST Litigation and Notices