LEVY OF COMPENSATION CESS

Introduction & Applicability

Section 1
Short title, extent and commencement
Sub-Section (1)	✔ This Act may be called the Goods and Services Tax (Compensation to States) Act, 2017.
Sub-Section (2)	✔ It extends to the whole of India
Sub-Section (3)	✔ It shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint. ( In force from 01-07-2017)
Section 2
Definitions
Sub-Section (1)(a)	Central tax	means the Central Goods and Services Tax levied and collected under the Central Goods and Services Tax Act.
Sub-Section (1)(b)	Central Goods and Services Tax Act	means the Central Goods and Services Tax Act, 2017
Sub-Section (1)(c)	Cess	means the Goods and Services Tax compensation cess levied under section 8
Sub-Section (1)(d)	Compensation	means an amount, in the form of Goods and Services Tax compensation, as determined under section 7
Sub-Section (1)(e)	Council	means the Goods and Services Tax Council constituted under the provisions of article 279A of the Constitution
Sub-Section (1)(f)	Fund	means the Goods and Services Tax Compensation Fund referred to in section 10.
Sub-Section (1)(g)	Input tax	in relation to a taxable person, means,– cess charged on any supply of goods or services or both made to him; cess charged on import of goods and includes the cess payable on reverse charge basis.
Sub-Section (1)(h)	Integrated Goods and Services Tax Act	means the Integrated Goods and Services Tax Act, 2017.
Sub-Section (1)(i)	integrated tax	means the integrated goods and services tax levied and collected under the Integrated Goods and Services Tax Act
Sub-Section (1)(j)	prescribed	means prescribed by rules made, on the recommendations of the Council, under this Act;
Sub-Section (1)(k)	projected growth rate	means the rate of growth projected for the transition period as per section 3
Sub-Section (1)(l)	Schedule	means the Schedule appended to this Act
Sub-Section (1)(m)	State	means,– for the purposes of sections 3, 4, 5, 6 and 7 the States as defined under the Central Goods and Services Tax Act; and for the purposes of sections 8, 9, 10, 11, 12, 13 and 14 the States as defined under the Central Goods and Services Tax Act and the Union territories as defined under the Union Territories Goods and Services Tax Act;
Sub-Section (1)(n)	State Tax	means the State goods and services tax levied and collected under the respective State Goods and Services Tax Act
Sub-Section (1)(o)	State Goods and Services Tax Act	means the law to be made by the State Legislature for levy and collection of tax by the concerned State on supply of goods or services or both
Sub-Section (1)(p)	taxable supply	means a supply of goods or services or both which is chargeable to the cess under this Act
Sub-Section (1)(q)	transition date	shall mean, in respect of any State, the date on which the State Goods and Services Tax Act of the concerned State comes into force;
Sub-Section (1)(r)	transition period	means a period of five years from the transition date; and
Sub-Section (1)(s)	Union Territories Goods and Services Tax Act	means the Union Territories Goods and Services Tax Act, 2017.
Sub-Section (2)	The words and expressions used and not defined in this Act but defined in the Central Goods and Services Tax Act and the Integrated Goods and Services Tax Act shall have the meanings respectively assigned to them in those Acts.
Section (3)	The projected nominal growth rate of revenue subsumed for a State during the transition period shall be 14% per annum
Section 5(1)	The base year revenue for a State shall be the sum of the revenue collected by the State and the local bodies during the base year, on account of the taxes levied by the respective State or Union and net of refunds with respect to the taxes imposed by the respective State or Union, which are subsumed into goods and services tax.
Section 5(2)	In respect of the State of Jammu and Kashmir, the base year revenue shall include the amount of tax collected on sale of services by the said State Government during the base year.
Section 5(3)	In respect of the States mentioned in sub-clause (g) of clause (4) of article 279A of the Constitution, the amount of revenue foregone on account of exemptions or remission given by the said State Governments to promote industrial investment in the State, with respect to such specific taxes referred to in sub-section (1), shall be included in the total base year revenue of the State, subject to such conditions as may be prescribed.
Section5(6)	In respect of any State, if any part of revenues mentioned in sub-sections (1), (2), (3) and (4) are not credited in the Consolidated Fund of the respective State, the same shall be included in the total base year revenue of the State, subject to such conditions as may be prescribed.
Section (6)	The projected revenue for any year in a State shall be calculated by applying the projected growth rate over the base year ( 2015-16) revenue of that State. Illustration.—If the base year revenue for 2015-16 for a concerned State, calculated as per section 5 is one hundred rupees, then the projected revenue for financial year 2018-19 shall be as follows — Projected Revenue for 2018-19=100 (1+14/100)3
Section (7)(1)	The compensation under this Act shall be payable to any State during the transition period.
Section (7)(2)	The compensation payable to a State shall be provisionally calculated and released at the end of every two months period, and shall be finally calculated for every financial year after the receipt of final revenue figures, as audited by the Comptroller and Auditor-General of India: Provided that in case any excess amount has been released as compensation to a State in any financial year during the transition period, as per the audited figures of revenue collected, the excess amount so released shall be adjusted against the compensation amount payable to such State in the subsequent financial year.
Section (7)(3)	The total compensation payable for any financial year during the transition period to any State shall be calculated in the following manner, namely:–– 1. the projected revenue for any financial year during the transition period, which could have accrued to a State in the absence of the goods and services tax, shall be calculated as per section 6; 2. the actual revenue collected by a State in any financial year during the transition period shall be— (i) the actual revenue from State tax collected by the State, net of refunds given by the said State under Chapters XI and XX of the State Goods and Services Tax Act; (ii) the integrated goods and services tax apportioned to that State; and (iii) any collection of taxes on account of the taxes levied by the respective State under the Acts specified in sub-section (4) of section 5, net of refund of such taxes, 3. as certified by the Comptroller and Auditor-General of India; 4. the total compensation payable in any financial year shall be the difference between the projected revenue for any financial year and the actual revenue collected by a State referred to in clause (b).
Section (7)(4)	The loss of revenue at the end of every two months period in any year for a State during the transition period shall be calculated, at the end of the said period, in the following manner, namely:–– 1. the projected revenue that could have been earned by the State in absence of the goods and services tax till the end of the relevant two months period of the respective financial year shall be calculated on a pro-rata basis as a percentage of the total projected revenue for any financial year during the transition period, calculated in accordance with section 6. Illustration.- If the projected revenue for any year calculated in accordance with section 6 is one hundred rupees, for calculating the projected revenue that could be earned till the end of the period of ten months for the purpose of this sub-section shall be 100x(5/6)=Rs.83.33; 2. the actual revenue collected by a State till the end of relevant two months period in any financial year during the transition period shall be— (i) the actual revenue from State tax collected by the State, net of refunds given by the State under Chapters XI and XX of the State Goods and Services Tax Act; (ii) the integrated goods and services tax apportioned to that State, as certified by the Principal Chief Controller of Accounts of the Central Board of Excise and Customs; and (iii) any collection of taxes levied by the said State, under the Acts specified in sub-section (4) of section 5, net of refund of such taxes; 3. the provisional compensation payable to any State at the end of the relevant two months period in any financial year shall be the difference between the projected revenue till the end of the relevant period in accordance with clause (a) and the actual revenue collected by a State in the said period as referred to in clause (b), reduced by the provisional compensation paid to a State till the end of the previous two months period in the said financial year during the transition period.
Section (7)(5)	In case of any difference between the final compensation amount payable to a State calculated in accordance with the provisions of sub-section (3) upon receipt of the audited revenue figures from the Comptroller and Auditor-General of India, and the total provisional compensation amount released to a State in the said financial year in accordance with the provisions of sub-section (4), the same shall be adjusted against release of compensation to the State in the subsequent financial year.
Section (7)(6)	Where no compensation is due to be released in any financial year, and in case any excess amount has been released to a State in the previous year, this amount shall be refunded by the State to the Central Government and such amount shall be credited to the Fund in such manner as may be prescribed.
Section 8	Cess shall be levied on such intra-State supplies of goods or services or both, as provided for in section 9 of the CGST Act, and such inter-State supplies of goods or services or both as provided for in section 5 of the IGST Act, and collected in such manner as may be prescribed, on the recommendations of the Council, for the purposes of providing compensation to the States for 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, for a period of 5 years or for such period as may be prescribed on the recommendations of the Council. Cess shall not be leviable on supplies made by a taxable person who has decided to opt for composition levy under section 10 of the Central Goods and Services Tax Act. The cess shall be levied on such supplies of goods and services as are specified in column (2) of the Schedule, on the basis of value, quantity or on such basis at such rate not exceeding the rate set forth in the corresponding entry in column (4) of the Schedule, as the Central Government may, on the recommendations of the Council, by notification in the Official Gazette, specify: Provided that where the cess is chargeable on any supply of goods or services or both with reference to their value, for each such supply the value shall be determined under section 15 of the CGST Act for all intra-State and inter-State supplies of goods or services or both: Provided further that the 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.
Section 9	For all purposes of furnishing of returns and claiming refunds, except for the form to be filed, the provisions of the CGST Act and the rules made thereunder, shall, as far as may be, apply in relation to the levy and collection of the cess leviable under section 8 on all taxable supplies of goods or services or both, as they apply in relation to the levy and collection of central tax on such supplies under the said Act or the rules made thereunder
Section 10	Crediting proceeds of cess to Fund. (1) The proceeds of the cess leviable under section 8 and such other amounts as may be recommended by the Council, shall be credited to a non-lapsable Fund known as the Goods and Services Tax Compensation Fund, which shall form part of the public account of India and shall be utilised for purposes specified in the said section. (2) All amounts payable to the States under section 7 shall be paid out of the Fund. (3) Fifty per cent. of the amount remaining unutilised in the Fund at the end of the transition period shall be transferred to the Consolidated Fund of India as the share of Centre, and the balance fifty per cent. shall be distributed amongst the States in the ratio of their total revenues from the State tax or the Union territory goods and services tax, as the case may be, in the last year of the transition period. (4) The accounts relating to Fund shall be audited by the Comptroller and AuditorGeneral of India or any person appointed by him at such intervals as may be specified by him and any expenditure in connection with such audit shall be payable by the Central Government to the Comptroller and Auditor-General of India. (5) The accounts of the Fund, as certified by the Comptroller and Auditor-General of India or any other person appointed by him in this behalf together with the audit report thereon shall be laid before each House of Parliament.
Section 11	The provisions of the CGST Act, and the rules made thereunder, including those relating to assessment, input tax credit, non-levy, short-levy, interest, appeals, offences and penalties, shall, as far as may be, mutatis mutandis, apply, in relation to the levy and collection of the cess leviable under section 8 on the intra-State supply of goods and services, as they apply in relation to the levy and collection of central tax on such intra-State supplies under the said Act or the rules made thereunder. Similarly, provisions of the IGST Act shall apply for inter-state supply of goods and services. The input tax credit in respect of cess on supply of goods and services leviable under section 8, shall be utilised only towards payment of said cess on supply of goods and services leviable under the said section.

 

SCHEDULE

[See section 8(2)] 

 

In this Schedule, reference to a "tariff item", "heading", "sub-heading" and "Chapter", wherever they occur, shall mean respectively a tariff item, heading, sub-heading and Chapter in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975). 

The rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), the section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this Schedule 

S. No.	Description of supply of goods or services	Tariff item, heading, sub-heading, Chapter, or supply of goods or services, as the case may be	The maximum rate at which goods and services tax compensation cess may be collected
(1)	(2)	(3)	(4)
1.	Pan Masala.	21069020	One hundred and thirty-five per cent ad valorem.
2.	Tobacco and manufactured tobacco substitutes, including tobacco products.	24	Four thousand one hundred and seventy rupees per thousand sticks or two hundred and ninety per cent ad valorem or a combination thereof, but not exceeding four thousand one hundred and seventy rupees per thousand sticks plus two hundred and ninety per cent 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	Four hundred rupees per tonne.
4.	Aerated waters.	2202 1010	Fifteen per cent 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	Twenty-five per cent ad valorm.
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	Twenty-five per cent ad valorem
6.	Any other supplies.		Fifteen per cent ad valorem.