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What is GST Cess and why is it levied?

Under GST, in addition to tax on supply (which are CGST + SGST/UTGST on intrastate supplies and IGST on interstate supplies), a GST Cess is to be levied on supply of certain goods.

Let us understand what this Compensation Cess is, why it is levied and its calculation.

What is GST Cess? GST Cess is an additional cess levied on supply of certain notified goods.
Why is it levied? It is levied to compensate states who may suffer any loss of revenue due to the implementation of GST. 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 supply of certain goods, which will be distributed to these states. This Cess will be levied for 5 years from the date of implementation of GST.
Who is liable to collect GST Cess? All taxable persons supplying the notified goods (except composition tax payers) should collect and remit this Cess.
Which goods will attract GST Cess? • Pan Masala
• Tobacco and tobacco products
• Cigarettes
• Coal, briquettes, ovoids and similar solid fuels manufactured from coal, lignite excluding jet and peat.
• Aerated waters
• Motor vehicles
What is the rate of Cess applicable on these goods? The GST cess rate schedule for these goods is available here.
Can input credit be availed on Cess paid on inward supply of these goods? Yes, input credit can be availed on Cess paid on inward supplies. However, credit of Cess paid can be utilized only towards payment of Cess liability.
On what value should the Cess be calculated? The Cess should be calculated on the transaction value. Refer this blog post to calculate the transaction value. The Cess should be levied in addition to the GST taxes- CGST + SGST in case of intrastate supplies and IGST in case of interstate supplies.

Let us take an example to understand the GST Cess calculation.

Super Cars Ltd. in Karnataka supplies 2 cars @ Rs. 2,00,000 each to Ravindra Automobiles in Karnataka. These are small petrol cars under 1200 CC, hence attracting 1% Cess. The GST rate applicable to motor cars is 28%. The invoice issued by Super Cars Ltd to Ravindra Automobiles will appear as shown below:

tax invoice

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