This Tax Alert summarizes a recent notification[1] issued by the Central Board of Indirect Taxes and Customs (CBIC) extending levy of Compensation Cess under Goods and Services Tax (GST).
GST Compensation Cess was introduced to compensate the States for the loss of revenue arising on account of implementation of GST. It was levied for a period of five years, subject to extension, if any, and the said period was ending on 30 June 2022.
Government has now extended the levy of GST Compensation Cess till 31 March 2026. At present, it is levied on motor vehicles, aerated waters, coal, pan masala etc.
It is relevant to note that during October 2020, the GST Council (in its 42nd meeting) had decided to extend the levy of Compensation Cess beyond the transition period of five years for such period as may be required to meet the revenue gap.
In the 45th GST Council meeting, it was brought out that the revenue collections from Compensation Cess in the period beyond June 2022 till April 2026 would be exhausted in repayment of borrowings and debt servicing made to bridge the gap in 2020-21 and 2021-22.
