Gst (Compensation To States) Act, 2017 – Advanced Tax Laws and Practice Important Questions
Question 1.
Why is the Goods and Services Tax (Compensation to States) Act, 2017 enacted?
Answer:
One of the biggest challenges while introducing GST in India was that states were opposing GST, because of their fear of losing revenue after the introduction of GST. The fear was more pronounced in the case of manufacturing/supplier states since the GST was to accrue to the state(s) where the actual consumption of goods takes place as GST is a destination-based tax.
In order to assure a steady flow of revenues to the states by way of compensating the loss, if it arises, Clause 18 of the Constitution (One Hundred and First Amendment) Act, 2016 specifically provided that the Parliament shall, by law, on the recommendation of the Goods and Services Tax Council, provide for compensation to the States for loss of revenue arising on account of implementation of the goods and services tax for a period of five years.
In line with the Constitutional amendment, the Government enacted the legislation known as, the Goods and Services Tax (Compensation to States) Act, 2017 for providing compensation to the States for the 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 (01/07/2017), for a period of five years or for such period as may be prescribed on the recommendations of the GST Council.
Question 2.
Briefly discuss the provisions related to the levy of compensation cess.
Answer:
Compensation Cess is levied as per section 8( 1) of the Goods and Service Tax (Compensation to States) Act, 2017. As per this section, Compensation 1 Cess is levied on the notified supply of goods or services or both for the purpose of providing compensation to the States for loss of revenue for 5 years or I for such period as may be prescribed on the recommendation of Council, from I enactment of GST law, which may arise due to implementation of GST.
Question 3.
Will refund of Compensation Cess be admissible under GST?
Answer:
Yes. Circular No. 1/1/2017-Compensation Cess issued by Board clarifies that provisions of section 16 of the IGST Act, 2017, relating to zero-rated supply will apply mutatis mutandis for the purpose of Compensation Cess (wherever applicable), that is to say, that: Exporter will be eligible for a refund of Compensation Cess paid on goods exported by him [on similar lines as a refund of IGST under section 16(3)(a) of the IGST, 2017]; or
(a) No Compensation Cess will be charged on goods exported by an exporter under bond and he will be eligible for a refund of an input tax credit of Compensation Cess relating to goods exported [on similar lines as a refund of input taxes under section 16(3)(a) of the IGST, 2017],
Thus, refund of compensation Cess (if it’s on account of zero-rated supplies) will be admissible to the claimant. The process and procedure for a claim of such refund will be the same as for refund of IGST (on both goods and services) and in respect of accumulated ITC of compensation cess.
Further, in cases of unutilized ITC of compensation cess availed on inputs in cases where the final product is not subject to the levy of compensation cess, it has been clarified vide Circular No. 45/19/2018- GST dated 30th May 2018, that refund of accumulated ITC can be claimed in such situations, however the rebate route ie. payment of IGST and claiming refund of compensation cess of IGST paid will not be permissible in such cases. In such cases, they cannot utilize the compensation 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 input tax credit of cess, only for the payment of cess on the outward supplies. Accordingly, they cannot claim a refund of compensation cess in case of zero-rated supply on payment of integrated tax.
Question 4.
Answer the following with reference to GST (Compensation to States) Act, 2017:
- Projected Growth Rate
- Base year
- Projected Revenue for any year
- Calculation and release of compensation
- The objective of GST (Compensation to States) Act, 2017
Answer:
(1) Projected Growth Rate
The projected nominal growth rate of revenue subsumed for a State during the transition period shall be fourteen percent (1496) per annum.
(2) Base Year
For the purpose of calculating the compensation amount payable in any financial year during the transition period, the financial year ending 31st March 2016 shall be taken as the base year.
(3) Projected Revenue for any year
The projected revenue for any year in a State shall be calculated by applying the projected growth rate over the base year 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 the financial year 2018-19 shall be as follows:
Projected Revenue for 2018-19 = 100 \(\left(1+\frac{14}{100}\right)^{3}\)
(4) Calculation and release of compensation
The compensation payable to a state has to be provisionally calculated and released at the end of every two months, which 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.
(5) Objective
The objective behind providing compensation to the states is for the loss of 1 revenue arising on account of implementation of the Goods and Services Tax (GST) in pursuance of the provisions of the Constitution (One Hundred and First Amendment) Act, 2016.
Question 5.
What valuation is to be adopted for levying compensation cess? The assessable value of an article imported into India is 1100. Basic Customs Duty is 10% ad valorem; Social Welfare Surcharge – 10%; Integrated tax rate is 18% and compensation cess is 15%.
Compute the value for compensation cess and amount of compensation cess.
Answer:
The value of the goods for the purpose of levying compensation cess shall be assessable value plus Customs Duty levied under the Act, and any other duty chargeable on the said goods under any law for the time being in force as an addition to, and in the same manner as, a duty of customs.
| Particulars | Amount (₹) |
| Assessable Value | 100 |
| Basic Customs Duty at 10% | 10 |
| Social Welfare Surcharge @ 10% of basic customs duty | 1 |
| Value for purpose of levy of IGST and Compensation Cess | 111 |
| Integrated Tax @ 18% (Rounded off) | 20 |
| Compensation Cess @ 15% of ? 111 | 16.65 |
Gst (Compensation To States) Act, 2017 Notes
- There are a total of 14 sections in the Act and 1 Schedule.
- The objective of the GST (Compensation to States) Act, 2017.
- Meaning of following terms: Base year, Base year revenue, Projected Growth rate, Projected Revenue.
- Goods and Services on which such compensation cess is leviable (Given in Schedule to the Act).
- Computation of compensation payable for any financial year.
- Calculation and bi-monthly release of compensation.
- Input Tax Credit (ITC) of cess to be utilized for payment of cess only.
- CGST Act provisions are applicable for returns and refunds.