Sep 27, 2017
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Compensation to States Act under GST(Goods & Services)

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Compensation to States

Compensation to states articles mainly talks about different types of revenue that are applicable to calculate that of various states revenue under the THE GOODS AND SERVICES TAX (COMPENSATION TO STATES) ACT, 2017.

Under GST , the council has clearly stated the types and forms so required to file the return.  Thus only registered person has right to claim. And filed for return under GST India.

Important Definition:

  • “Projected growth rate” means the rate of growth projected for the transition period as per section 3.
  • “Schedule” means the Schedule appended to this Act
  • “State” means,––

1.   For the purposes of sections 3, 4, 5, 6 and 7 the States as defined under the Central Goods and Services Tax Act; and

2.  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.

  • “State tax” means the State goods and services tax levied and collected under the respective State Goods and Services Tax Act.
  • “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.
  • “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.
  • “Transition period” means a period of five years from the transition date.

Projected growth rate:

The projected nominal growth rate of revenue subsumed for a State during the transition period shall be 14%p.a.

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, shall be taken as the base year.

Base Year Revenue (BYR) =

 

 

Projected revenue for any year:

Calculated by applying the projected growth rate over the base year revenue of that State

Illustration(1).—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 i.e. 14%)3

Compensation to states:

  1. Section 7 of Goods and Service Compensation act, 2017 deals with Goods and Service Compensation to states.
  2. Compensation payable during transition period i.e. 5years

 

 

3. Total(Final) compensation payable = PROJECTED REVENUE* − ACTUAL REVENUE**

*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, calculated as per illustration (1)

**Actual revenue collected by a State till the end of relevant two months period in any financial year during the transition period shall be—

  • 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,
  • Thus 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
  • 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.

4.Loss of revenue (Provisional compensation) = PROJECTED REVENUE* − ACTUAL REVENUE**

*The projected revenue that could have been earned by the State in absence of GST till the end of the relevant quarter of the respective financial year would be calculated on a pro-rata basis as a percentage of the total projected revenue for any financial year during the transition period, as calculated as per section 6.

(Illustration: If the projected revenue for any year calculated as per section 6 is Rs. 100, the projected revenue that could be earned till the end of third quarter for the purpose of this sub-section shall be Rs. 75)

**The actual revenue collected by a State till the end of relevant quarter in any financial year during the transition period would be the actual revenue from State Goods and Services Tax collected by the State, net of refunds given by the State under Chapter XI of the SGST Act, including Integrated Goods and Services Tax apportioned to that State, as certified by the Principal CCA (CBEC).

***The provisional GST compensation payable to any State at the end of the relevant quarter in any financial year shall be the difference between the projected revenue for till the end of the relevant period as per sub-section (3)(a) and the actual revenue collected by a State in the said period as defined in sub-section (3)(b), reduced by the provisional GST compensation paid to a State till the end of the previous quarter in the said financial year during the transition period.

5. In case of difference between the total (final) compensation and Loss of revenue (Provisional compensation) released by state, the same need to adjust against release of compensation to state in the subsequent financial year.

6.

Where no compensation is due to release in any financial year, and in case any excess amount has release to a State in the previous year

Thus amount shall refund by the State to the Central Government

       ↓

Further, such amount shall credit to the GST Compensation Fund in a manner as may prescribe.

Crediting Proceeds of Cess To Goods and Service tax Compensation Fund:

Crediting Proceeds of Cess to Compensation Fund

(1)Goods and services tax compensation cess leviable under section8 ·     Credited to a non-lapsable fund, known as Goods and Services Tax (GST) compensation fund.

·     Amount being utilised for purpose specified in section 8.

(2)All amount paid under section 7

 

·     Amount paid out of the Goods and Services Tax (GST) compensation fund.
(3)Unutilised amount in case of Goods and Services Tax (GST) compensation fund at the end of transition period

 

 

·     50% of amount distributed among central  and state

·     Remaining 50% distributed among states in ration to total revenue of their SGST.

 

(4)Audit of Account of Compensation Fund ·     Done by comptroller and audit general of India or any other person so appointed by their behalf and expense relating to same is paid by central government.
(5)Certification of Account of Compensation Fund ·     Done by 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.

The maximum rate for GST compensation cess as per the schedule under Goods and services tax GST (Compensation to states) act, 2017

As per schedule à Maximum rate for GST compensation cess are:

 

Description of supply of goods or services

 

Thus maximum rate at which goods or services tax compensation cess may be services, as the case collected

1.      Pan Masala

 

135% Ad- valorem*

2.      Tobacco and manufactured tobacco substitutes, including tobacco products

Rs.4170 per thousand sticks

Or

290% Ad- valorem*

Or

Combination thereof)

(but not exceeding :

Rs. 4170 per thousand sticks

+

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.

Rs.400 per tonne

4.      Aerated waters

15% 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.

15% ad valorem*

6.      Any other supplies

15% ad valorem*

Other provision relating to cess:

  1. The provisions of the Central Goods and Tax Act, 2016, and the rules made thereafter, shall, as far as may be, apply mutatis mutandis in relation to the levy and collection of the cess leviable under section 8 of the goods and service tax compensation act,2017 on the intrastate supply of goods and services, as the case may be.
  2. The provisions of the Integrated Goods and Tax Act, 2016, and the rules made thereafter, shall, as far as may be, apply in relation to the levy and collection of the cess leviable under section 8 on the inter-state supply of goods and services, as they apply in relation to the levy and collection of Integrated Goods and Services Tax on such inter-state supplies under the said Act or the rules made thereunder, as the case may be.
  3. Provided further that the input tax credit in respect of GST Compensation Cess on supply of goods and services leviable under section 8, shall utilize only towards payment of GST Compensation Cess on supply of goods and services leviable under section 8.

Power to make rules in relation to act:

Central government, on recommendation of the council, by notification in the official gazette, make rules for carrying out the provision of this act.

Power to remove difficulties:

  1. Thus, Central government, on recommendation of the council, by notification in the official gazette, make rules for carrying out the provision of this act as appear to it to be necessary or expedient for removing the difficulty.
  2. However, no order shall make under this section after the expiry of three years from the commencement of the act.

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Renuka is a Final Year LL.B. student at Siddharth College of Law. She has done her Bachelors in Banking & Insurance and has also completed her Masters in Business Management . She likes to participate in legal workshops and Moot Courts. Besides her interest in law, she has a keen aptitude for legal research and is good at putting her analysis into words.

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