CA Dr Arpit Haldia
FCA, CS, CWA, Ph.D., LL.B. DISA, DIRM (ICAI)
GOODS AND SERVICES TAX
(COMPENSATION TO THE
STATES FOR LOSS OF
REVENUE) BILL, 2016
• Purpose of Levy of GST Compensation Cess: Section 8
•

Provide compensation to States for loss of revenue arising on
implementation of GST Act for a period of five years, w.e.f. date from
which the CGST Act is brought into force.
Base Year -Section 4:
◦ Financial Year Ending 31st March 2016

Input Tax : Section 2(8)
◦ GST Compensation Cess charged on
- Any supply of goods and/or services to him,
- On import of goods, and includes
- Payable on reverse charge basis.

Projected Growth Rate : Section 3

Transition Period: Section 2(16)

Transition Date: Section 2(15)

Compensation Payable to States:
◦ 14% Per Annum for revenue subsumed for a State
◦ Period of Five Years from the Transition Date
◦ Date on which the Goods and Services Tax Act of the
concerned state comes into force
◦ Projected revenue for any financial year Less actual
revenue collected by a State



VAT, sales tax, purchase tax, tax collected on
works contract, or any other tax levied by the
concerned State under the erstwhile Entry 54
of List-II (State List)
Central Sales Tax (CST) levied by the Central
Sales Tax Act, 1956;
Entry tax, octroi, local body tax or any other
tax levied by the concerned State under the
erstwhile Entry 52 of List-II (State List)


Taxes on luxuries, including taxes on
entertainments, amusements, betting and
gambling or any other tax levied by the
concerned State under the erstwhile Entry 62
of List-II (State List)
Taxes on advertisement or any other tax
levied by the concerned State under the
erstwhile Entry 55 of List-II (State List)


Duties of excise on medicinal and toilet
preparations levied by the Union but collected
and retained by the concerned State
Government under the erstwhile Article 268
of the Constitution
Any cess or surcharge levied by the State
Government under any Act which is included
in the definition of ‘earlier laws’ as per
section 2(39) of the State Goods and Services
Act of the concerned State

Taxes and Cess levied by the State and taxes
levied under the CST Act, 1956 (74 of 1956)
◦
◦
◦
◦
◦
◦
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Sale or purchase of petroleum crude,
High speed diesel,
Motor spirit (commonly known as petrol),
Natural gas,
Aviation turbine fuel and
alcoholic liquor for human consumption;
Entertainment tax levied by the State but
collected by local bodies,



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 Rs. 100, then the projected revenue for, say,
financial year 2018-19 shall be as follows:
2008-09=100(1+14/100)3

Levy: Supplies of goods and services, including
◦ Imports of goods and services, and
◦ Supplies on which tax is payable on reverse charge basis
under CGST Act,
◦ Not leviable section on supplies made by a taxable
person permitted to opt for composition levy under
CGST Act.
◦ Prescribed on the recommendations of GST Council.

Value : Value determined under section 15 of

Rate : To be Notified
CGST Act, 2016


Who is Liable to File Returns:
◦ Every taxable person registered under CGST Act, 2016
◦ Making a taxable supply of goods and/or services,
How Return is to be Filed:
◦ Return to be furnished in formats, as may be prescribed,
◦ Along with the returns to be filed under the CGST Act

How Tax is to be Paid or refund is to be applied:
◦ In the manner as may be prescribed

Whether Returns & Refunds Format would be same in CGST
◦ Separate Formats would be prescribed.

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Proceeds to be credited to a non-lapsable fund known as
the GST Compensation Fund

The proceeds shall be
compensation to the States.
utilized
for
payment

Amount Remaining Unutilized at the end of the Transition
Period :
◦ Fifty percent of the amount remaining unutilized shall
transferred to the Consolidated Fund of India, and shall
distributed between the Centre and the States and amongst
States as per provisions of clause (2) of article 270 of
Constitution;
◦ Balance fifty percent shall be distributed amongst the States in
ratio of their total revenues from SGST in the last year of
transition period.
of
be
be
the
the
the
the

Input Tax Credit in respect of GST Compensation
Cess on supply of goods and services leviable under
section 8, can be utilised only towards payment of
GST Compensation Cess on supply of goods and
services leviable under section 8.
 Anti-Profiteering
Measure –
Section 163

3 C’s OF Business –Relevant for Pricing in
Business
◦ Company
◦ Customer
◦ Competitor

Anti-Profiteering Measures Adding the Fourth
◦ Compliance

Who would Monitor APM:
◦ Authority Constituted by Central Government by law
constitute or an existing Authority constituted
under any law

What would be Relevant Factor under APM:
◦ Input tax credits availed by any registered taxable
person or
◦ Reduction in the tax rate

What would be Examined in APM:
◦ Whether availment of ITC or reduction in Tax Rate
has actually resulted in a commensurate reduction
in the price of the said goods and/or services
supplied by him.

What are the powers of the Authority:
◦ Authority would have powers, including those for
imposition of penalty, where it finds that the price
being charged has not been reduced as aforesaid.

Uncertainty and Ambiguity
Implementation of GST
Surrounding
◦ Cost of Compliance in GST
◦ Effect of GST on Liquidity
◦ Whether GST would result in Increase of Prices of
Product or Reduction
◦ Transitional period is required for the Business for the
date of Implementation for assessing the impact on
Pricing.
◦ The Law proposes to levy the Penalty if the benefit of the
Input Tax Credit has not resulted in commensurate
reduction in the price of the said goods/services
supplied by him.
 What about credit available and not availed by him.
 What about credit availed but lying unutilized in his Input
Tax Credit Account.
 What about the factor of time wherein the Input Tax Credit
remained unavailed with the taxable person.
◦ One to one marking of the Input Tax Credit availed
and Corresponding reduction how possible in case
of Multiple Products
◦ The Rules regarding the same needs to be made
public early so that the businesses may plan
accordingly.

Self Assessment: Section 57

Provisions Assessment: Section 58
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Scrutiny of returns-Section 59
◦ Where the taxable person is unable to determine the value
of goods and/or services or
◦ Determine the rate of tax applicable thereto,
◦ Verify the Correctness of the Returns and Particulars
◦ Inform the Taxable Person of the Discrepancies
◦ Proceedings would be dropped if explanation found
acceptable
◦ No Explanation Furnished within Thirty Days/Taxable
Person after accepting discrepancy does not take corrective
action, proper officer may initiate appropriate action

Assessment of Non-Filer of Returns-Section 60
◦ Registered Taxable Person fails to Furnish Return under
Section 34/Section 40 after service of notice U/Sec 41
◦ If the Return submitted within thirty days of the submission
of the Assessment Order, The Assessment order shall be
deemed to be Withdrawn
◦ Five Years from the Due Date of Filing of Annual Return for
the year to which such non-filing of return pertains


Assessment Of Unregistered Persons-Section 61
◦ Where a person fails to take Registration even though liable
to do so
◦ Time Limit for Assessment: Five Years from the Due Date
for filing of the Annual Return
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Summary Assessment in Special Cases

Why Summary Assessment:

Permission Required

Power to withdraw order passed in Summary Assessment
◦ To Protect the Interest of Revenue, if he has sufficient ground to
believe that any delay in doing so will adversely affect the interest
of revenue
◦ Permission of Additional/Joint Commissioner
◦ Erroneous order may be withdrawn and procedure laid down in
Section 66/67 may be followed
◦ Power to Withdraw the Order rests with Additional/Joint
Commissioner on an application made by taxable person within
thirty days from date of receipt of order or on his own motion

Who can Conduct the Audit:

Where Audit would be Conducted:

Time Limit for Completion of Audit:

Time Limit for Passing of Order:
◦ Commissioner or any officer authorised by him by general
or specific order
◦ Audit can be conducted at the business place or in their
office
◦ Audit to be completed within three months from the date of
commencement of Audit
◦ Period of three month can be further extended the period
by a period not exceeding six months
◦ Order should be issued within thirty days from the
conclusion of Audit.
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When can Special Audit be Ordered:
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Who can order Special Audit

Why Special Audit:
◦ Special Audit can be ordered at any stage of scrutiny,
enquiry, investigation or any other proceedings before
officer not below the rank of Deputy/Assistant
Commissioner
◦ Deputy/Assistant Commissioner with the prior approval of
the Commissioner,
◦ Special Audit can be conducted where having regard to the
nature and complexity of the case and interest of revenue is
of the opinion,
 that the value has not been correctly declared or
 the credit availed is not within the normal limits,

Who can conduct a Special Audit
◦ Special Audit has to be conducted by a chartered
accountant or a cost accountant as may be nominated by
the Commissioner in this behalf.

Time Limit:
◦ Ninety Days and can be further extended by Ninety Days

Consequences of Any Detection in Special Audit:
◦ If any detection of Tax Not Paid or short paid or
erroneously refunded, or input tax credit wrongly
availed, action may be initiated under section 66, or 67
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Order can be issued within
Three years from the due
date for filing
of Annual
Return for the relevant year
or date of erroneous refund

Notice has to be issued at
least Three months prior to
the time limit for issuance of
Order

If tax and Interest deposited
suo-moto, before service of
Notice, No Notice shall be
served for levy of penalty

Reason other than Fraud Willful
Mis-Statement or Suppression of
Facts to evade Tax
Order can be issued within
Five years from the due date
for filing of Annual Return
for the relevant year or date
of erroneous refund
Notice has to be issued at
least Six months prior to the
time limit for issuance of
Order.
If tax, Interest and penalty @
15% of Tax deposited suomoto, before service of
Notice, No Notice shall be
served for levy of penalty
Reason of Fraud Willful MisStatement or Suppression of Facts
to evade Tax

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If tax and Interest deposited
within thirty days of issue of
Notice, No Notice shall be served
for levy of penalty
On considering representation,
Proper Officer shall pass an
order for tax, interest and a


penalty equivalent to ten percent
of tax or ten thousand rupees
whichever is higher.
No Such condition exists under
section 66
and maximum
If tax, Interest and penalty @
25% of Tax deposited within
thirty days of issue of Notice, No
Notice shall be served for levy of
penalty
On considering representation of
the person chargeable to tax,
Proper Officer shall pass an
order for tax, interest and
penalty.
penalty to be levied in such
cases is 10% of the tax or Ten
Thousand Rupees,
If tax, Interest and penalty @
50% of Tax deposited within
thirty days of communication of
order, All proceedings shall be
deemed to be concluded
Reason other than Fraud Willful
Mis-Statement or Suppression of
Facts to evade Tax
Reason of Fraud Willful MisStatement or Suppression of Facts
to evade Tax
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

Who can rectify the mistake
◦ Any authority who has passed or issued ay decision
or order or summons or notice or certificate or any
other document

How can an officer rectify his mistake
◦ Either on his own motion or
◦ Where a mistake is brought to the knowledge of the
proper officer within Three Months from the date
issue of such order
 through an application from the affected person or
 by any CGST/SGST Officer

Which mistake can be rectified
◦ Mistake which is apparent from record

Time Limit for Rectification
◦ Six months from the date of issue of such decision.
◦ Extended Time limit not applicable for rectifications
purely in the nature correction of a clerical,
arithmetical error or mistake arising from any
accidental slip or omission.

Time Limit for Filing Appeal for a person: Three Months from
the date on which the said decision or order is communicated

Time limit for filing of Appeal by the Department: Six Months
from the date on which the said decision or order is
communicated

Delay Condonation in Filing of Appeal: One month from the
time limit prescribed above.

Pre-Deposit for filing of appeal: Admitted Tax, Interest, Fine,
Fees and Penalty and 10% of remaining amount of tax in
dispute

Departmental Authorities may ask the First Appellate Commissioner for
Deposit of an higher amount not exceeding Twenty Five Percent of the
amount of tax in dispute in “Serious Case”.

Serious Case is order passed under section 67 involving a disputed tax
liability of not less than Rupees Twenty Five Crores

Maximum three adjournment can be given to a party during appeal.

First Appellate Authority can Confirm, Modify or Annul the order but shall
not refer case back to the authority who passed the order.

Appeal wherever possible be heard and decided within a period of one
year from the date on which it is filed.

Time Limit for Filing Appeal for a person: Three Months from the date
on which the said decision or order is communicated

Time limit for filing of Appeal by the Department: Six Months from
the date on which the said decision or order is communicated

Appeal Fee: There would be appeal fees which would have to be
deposited before filing appeal before the Tax Tribunal

Delay Condonation in Filing of Appeal: Delay in filing appeal or
memorandum of cross objections can be condoned on sufficient cause
for not presenting within time.

Pre-Deposit for filing of appeal: Admitted Tax, Interest, Fine, Fees and
Penalty and 10% of remaining amount of tax in dispute in addition to
the amount deposited for appeal to the First Appellate Authority

Appellate Tribunal may refuse to admit an appeal where tax, ITC, fine,
fees or penalty determined does not exceed One Lakh Rupees

Forty Five days time limit for submission of Memorandum of Cross
Objections by the party against whom appeal has been preferred

Departmental Authorities may ask the First Appellate Commissioner
for Deposit of an higher amount not exceeding Twenty Five Percent
of the amount of tax in dispute in “Serious Case” after taking int0
account amount deposited in the first appeal.

Serious Case is order passed under section 67 involving a disputed tax
liability of not less than Rupees Twenty Five Crores

First Appellate Authority can Confirm, Modify, Annul, refer the case
back to the First Appellate Authority, Revisional Authority or tge
original adjudicating authority.

Appeal wherever possible be heard and decided within a period of
one year from the date on which it is filed.

Maximum three adjournment can be given to a party during appeal.

No Appeal shall lie in the High Court against the order
passed by the Tribunal wherein the order pertains to a
matter where two or more States, or a State and Centre
have difference In views regarding
◦ Treatment of Transaction being Inter State or Intra State
◦ Having difference of views regarding place of Supply

Time Limit for Filing of Appeal: 180 days from the date on
which order appealed against is received

The Appeal shall be accompanied with such fees as may be
prescribed.

High Court may condone the delay in filing of the Appeal.

Appeal shall lie before the Supreme Court from
any judgement or order passed by the High Court
◦ On its Own Motion
◦ On an oral application made by or on behalf of the party
aggrieved

Time Limit: No specific Time Limit provided. The
oral application has to be made immediately after
passing of the judgement or order, which the
High Court certifies fit to be appealed to
Supreme Court.

Every taxable person to be assigned GST compliance
rating.

The rating score based would be based on his record of
compliance with the provisions of this Act.

The basis of parameters would be prescribed in this
behalf.

GST compliance rating score would be updated at periodic
intervals.

The rating would be intimated to the taxable person and
also placed in the public domain in the manner prescribed.

Any fall in the rating below a prescribed level will
have impact of blacklisting a dealer.(As per Business
Process)
• Blacklisted GSTINs cannot be uploaded in purchase details.
Corresponding denial of ITC to be supported by suitable
provision in the law. (No such provision till date in Law)

Would act as Trigger for Blacklisting
◦ Continuous default for 3 months in paying ITC that has
been reversed.
◦ Continuous default of 3 months or any 3 month-period
over duration of 12 months in uploading sales details
leading to reversal of ITC for others.
◦ Continuous short reporting of sales beyond a prescribed
limit of 5% (of total sales) for a period of 6 months.
◦ Only for regulating ITC by others.
◦ Will be based on dealer rating. A dealer will be
blacklisted if dealer rating falls below the
prescribed limit.
◦ To be put in public domain.
◦ To be notified (auto-SMS) to all dealers who have
pre-registered this dealer (black listed now) as their
supplier.
◦ To be prospective only (from month next to
blacklisting)
◦ Blacklisted GSTINs cannot be uploaded in purchase
details. Corresponding denial of ITC to be
supported by suitable provision in the law.
◦ ITC reversal in hands of the buyer should take place
for disowning of any tax invoice.
◦ Once blacklisting is lifted, buyers can avail
unclaimed ITC subject to this dealer uploading sales
details along with tax and interest.


Average Tax Rate in GST Lower than 18% and
Consumer Goods i.e. Food Grains, Agri Porducts
and Mass Consumption goods to be taxed at
lower rate
The 4 tier rate structure as finalized is different
than the one earlier proposed in the GST Council
Meeting i.e. 6%, 12%, 18% and 26%. There seems
to have been a view to bring the lower rate of
GST to a more reasonable level so as to take
along the public as all the common use goods
would be under the tax net at the rate of 5%.


The detailed tax structure is yet to be specified, the
lower tax rate structure was reduced from 6% to 5%
and to accommodate the reduction, the higher tax
rate slab has been increased from 26% to 28%.
Food being an essential item has been kept in zero
rated category. These items are not exempt but are
under zero rated category thereby meaning that the
goods would be taxes at zero rate. This would mean
that there would be no cascading effect on the cost of
such items. These items also constitute 50% of the
Consumer Price Index, therefore such zero tax
rate would keep inflation in check.



Lower rate of 5% would be prescribed for mass
consumption items which are used buy common
public.
There would be two standard rates in GST i.e. 12%
and 18%. How the two standard rates would be used
is yet to be clarified.
Tax Rate of 28% would be levied on the White Goods
and Luxury Goods along with the other demerit
goods. White goods are generally termed as large
electrical goods used domestically such as
refrigerators and washing machines etc. These goods
are being presently taxed at 30-31% i.e. Excise, VAT
and CST and their cascading effect.


Luxury Cars, Tobacco and Aerated drinks which
would be taxable at the rate of 28% would also
bear an additional cess. This revenue generated
from additional cess would be used for the
purpose of compensating the states from the
revenue loss from implementation of GST and
removal of CST. This cess would be applicable for
first five year and would then lapse.
Tax Rate on Gold items is yet to be announced.
This seems to be the most contentious issue as
the rate has been put on hold for further
discussion with the Industry.