#Subsume into full

Expiry of cess will help those industries,' said Rajat Bose, a partner at law firm Shardul Amarchand Mangaldas & Co. If the cess has served its purpose, it should go. Secondly, it can always be challenged in a court by the affected industries as courts have many times clarified that what cannot be levied directly cannot be levied indirectly either. The difficulty with subsuming it within GST is that it will create an additional slab of 28% plus. “Legally, if its purpose has been served, it cannot be levied any further. The GST cess meant to compensate states’ revenue losses for a specific period, which has been extended till 2026, should achieve its purpose within that extended period. The amount is likely to go up further in subsequent years.Įxperts, however, see some practical difficulties. If the Centre’s formula is applied to this, ₹84,000 crore of this could go to states if they accept the proposal. The compensation cess collection is estimated at ₹1.2 trillion in 2022-23. The cess on cars goes up to 22% and is 12% for aerated drinks. To be sure, it isn’t clear whether states would agree to the suggestion, given that this government’s term will be over in 2024, and a new finance commission formula will guide Centre-state fiscal relations after 2026.Ĭompensation cess is levied on luxury and sin items such as aerated drinks, coal, pan masala, cigarettes and automobiles over the peak GST rate of 28%.

#Subsume into full

The states are given full compensation for the first five years of introduction of GST on the assumed revenue growth rate of 14% over the base year of 2015-16. States may not even require compensation,' the person added. “GST revenues are at a record high now, much higher than budget estimates and revised estimates. The person added that states would gain more if they get a share of higher taxes on these items than continuing to get compensation, which they will get only in case of a revenue shortfall.

While a decision has not been taken on this, there is no reason why we should allow cigarettes or aerated drinks to continue at the same rate as non-sin goods,' the person said. “The cess component charged today may get subsumed within GST. States have been pressing for the extension of GST compensation beyond June and are likely to take it up in the next GST Council meeting. Second, a surge in GST collections means states may not require compensation, which is paid out of cess collection proceeds only when states face a revenue shortfall. The Centre does not see any merit in states’ demand for continued GST compensation beyond June, as it has no legal obligation to compensate states beyond the first five years of the indirect tax implementation. Subsuming the cess into GST will mean that the states will get half of the proceeds as state GST (SGST) in addition to getting 41% of the Centre’s GST collections, a person familiar with the development said on condition of anonymity.