Levy Of Cess Under GST

Levy Of Cess Under GST

GST known to be One Tax – One Nation is a combination of Integrated GST, Central GST, State GST, and Cess. GST has replaced a number of indirect taxes and levies under Union and state legislation. Before the introduction of GST, there were various types of Cess applicable like Krishi Kalyan Cess, Swachh Bharat Cess, Clean Energy Cess, etc. All these Cess are subsumed into GST. However, the government has introduced some new types of Cess after the GST came into force, the most prominent among such Cess is the GST Compensation Cess (‘GST Cess’).

In this article, we shall cover the following topics: –

Background Of Levy Of Cess Under GST

GST being a destination-based tax impacted the revenue of the states as there are gaps in production and consumption. Hence to compensate the loss arising to the states due to implementation of GST, a GST Compensation Cess was introduced for a period of five years which shall be applicable till 30th June 2022.

The constitutional validity of GST Cess has been a constant matter of debate post GST implementation. This was settled in the case of Union of India Vs. Mohit Minerals Private Limited (Civil Appeal No. 10177 of 2018), wherein the Supreme Court (SC) has held that as per section 18 of the Constitution (hundred and first Amendment) Act, 2016 the Centre is required to compensate states on account of loss due to the introduction of GST. As per article 246A of the Constitution, the Parliament has the power to tax goods and services. Therefore, to conclude the Centre has the power to levy any Cess on supply of goods and services and is an increment to GST which is permissible in law.

Levy And Collection Of Cess

  • The levy of Cess is covered under Section 8 of Goods and Services Tax (Compensation to States) Act 2017 (hereinafter referred to as ‘Cess Act’).
  • As per Section 8 of the Cess Act, Cess has to be levied on Interstate supplies and intra state supplies of goods and services as provided under the Schedule of the Cess Act.
  • In case of imports, the Cess shall be levied and collected as per provisions of Customs Tariff Act, 1975.
  • However, Cess cannot be levied on goods exported by an exporter under bond or supplies made by person paying tax under composition scheme as per Section 10 of the Central Goods and Services Tax Act, 2017.
  • Notification No. 04/2017-Compensation Cess (Rate) dated 20th July 2017 exempts levy of GST Cess on intra-state supplies of second-hand goods from an unregistered supplier to any registered person, dealing in buying and selling of second-hand goods and who pays the GST Cess on the value of outward supply of such second-hand goods.

Utilization Of Input Credit Of GST Cess

  • GST Cess being levied for the purpose of compensating the states, cannot be utilized for payment of CGST or SGST or IGST liability.
  • As per proviso to section 11(2) of the Cess Act, ITC on account of Cess on inward supply of goods and services shall be utilized only towards payment of GST Cess on the outward supply of goods and services.
  • Goods exported by an exporter under bond will be eligible for a refund of ITC of Compensation Cess relating to goods exported if the goods are exported without payment of Cess.
  • However, if the goods are exported on payment of Cess, then the exporter shall be eligible to claim a refund of Cess paid on goods exported by him.

Valuation Mechanism For The Purpose Of Levy Of Cess

As per the first proviso to section 8(2) of the Cess Act, the valuation mechanism shall be determined as per section 15 of the CGST Act, 2017.

This calculation of Cess amount is illustrated with the help of the below table:

Particulars Value
Taxable Value as per Section 15 15,000
Rate of GST Cess 1%
Input Tax Credit(ITC) total available 1,000
ITC only limited to GST Cess 500
Total GST Cess payable 15,000*1%= 1,500
ITC availed 500
Net GST Cess payable 1,500-500= 1,000

As per the first proviso to section 8(2) of the Cess Act, the valuation mechanism shall be determined as per section 15 of the CGST Act, 2017.

This calculation of Cess amount is illustrated with the help of the below table:

ParticularsValue
Taxable Value as per Section 1515,000
Input Tax Credit(ITC) total available 1,000
ITC only limited to GST Cess 500
Total GST Cess payable 15,000*1%= 1,500
ITC availed 500
Net GST Cess payable 1,500-500= 1,000

GST Cess On Zero Rated Supply Under GST

  • As per section 11 of the Cess Act, the provisions of CGST Act, 2017 and IGST Act, 2017 shall apply in relation to the levy and collection of the Cess as they apply in relation to the levy and collection of Central Tax or Integrated Tax on such intra-State or inter-state supplies under the said Act or the rules made thereunder.
  • In view of the above, the provisions of section 16 of the IGST Act, 2017, relating to zero-rated supply will apply mutatis mutandis for the purpose of GST Cess (wherever applicable), that is to say, that:

– The exporter will be eligible for a refund of GST Cess paid on goods exported by him;
– No GST Cess will be charged on goods exported by an exporter under bond/LUT and he will be eligible for a refund of ITC of GST Cess relating to goods exported.

  • As per Section 9(2) of the Cess Act, for the purposes of furnishing returns and claiming refunds of GST Cess, the provisions of the CGST Act, 2017 and the rules made thereunder, shall be applicable as they apply in relation to levy and collection of central tax. Therefore, refund procedure as applicable in case of CGST will apply for a refund of GST Cess in case of zero-rated supplies.

Refund Of GST Cess

In case a registered person has unutilized credit of GST Cess paid on the inputs, where the zero-rated final supply is not leviable to GST Cess. In that case, a registered person making zero rated supply under bond or LUT may claim a refund of unutilized credit including that of GST Cess paid on inputs.
Such registered persons may also make zero-rated supply on payment of IGST but they cannot utilize the credit of the GST Cess paid on inputs for payment of IGST in view of the proviso to section 11(2) of the Cess Act, which allows the utilization of the Cess ITC only for the payment of Cess on the outward supplies.

Supplies Covered Under GST Cess

As per section 8(2) of the Cess Act, GST Cess shall be levied on such supplies of goods and services as are specified in the Schedule to the Cess Act which are as follows:
Sr.No. Description of supply HSN Maximum Rate of Cess

1

Pan Masala 2106 90 20 135 ad valorem

2

Tobacco and manufactured tobacco substitutes, including tobacco products 24 4170 per thousand sticks or 290% ad valorem or a combination thereof, but not exceeding 4170 per thousand sticks plus 290% ad valorem

3

Coal, briquettes, ovoids and similar solid fuels manufactured from coal, lignite, whether or not agglomerated, excluding jet, peat (including peat litter), whether or not agglomerated 2701, 2702 or 2703 400 per ton

4

Aerated waters 2202 10 10 15% ad valorem

4A

Motor vehicles for the transport of not more than thirteen persons, including the driver 8702 10, 8702 20, 8702 30 or 8702 90 25% ad valorem

5

Motor cars and other motor vehicles principally designed for the transport of persons (other than motor vehicles for the transport of ten or more persons, including the driver), including station wagons and racing cars 8703 25% ad valorem

6

Any other supplies 15% ad valorem
However, the rates specified in the schedule are the maximum rate defined under the Act. The rates to be referred basis the Notifications issued in the official gazette from time to time. Principal Notification for rates of Cess on goods is Notification No 1/2017 – Dated 28th June 2017 – GST Cess Rate. Principal Notification for rates of Cess on specified services is Notification No 2/2017 – Dated 28th June 2017 – GST Cess Rate.

Kerala Flood Cess

Kerala Flood Cess (KFC) is different from GST Compensation Cess. This is levied to raise the fund required for the re-construction of State after the devastating flood occurred in the State during August 2018. KFC has accorded sanction of the GST council in the 32nd Council Meeting held on 10th January 2019. KFC is levied under Section 14 of the Kerala Finance Act, 2019.

Salient Features of Kerala Flood Cess are as under:

  • KFC will be in force for a period two years from the date of commencement till 31st July 2021;
  • The tax is only applicable to intra-state supply of goods or services or both;
  • The transaction between taxpayers in furtherance of business is exempted from levy;
  • The Cess rate is 1% on the taxable value arrived as per section 15 of CGST Act, 2017;
  • GSTIN will be treated as Registration No. for KFC and shall be collected and paid before 20th of the succeeding month;
  • Composition taxpayers are exempted from the levy of KFC.

In the pandemic scenario, the center is required to compensate states for the loss of revenue on account of GST implementation. The calculation of loss amount to states is done taking a nominal growth rate of 14% per annum on the base year tax figures.
Looking at the current situation, the Centre might not be able to compensate for the states. The GST council in order to make good the shortfall in the collection of Cess might come up with an expansion of the coverage of GST Cess or rationalization of exiting Cess rates on supply in the near future.
The Cygnet ASP- GSP Solution provides an exhaustive automated tool for filing returns. The in-built validations in the tool provide greater efficiency and accuracy in filing returns. The Benefits of Cygnet GSP Solution are as under: –

  • Flexibility – Can be integrated with any ERP for direct fetching of data;
  • Exhaustive – Automatic Validations on the entire set of data;
  • Updated – Any change in the requirements as per provisions of the law are updated with least lead time 

Sharing is caring!