Is Advance Ruling a needed option in the case of Compensation Cess?
JUNE 08, 2018
By K Srinivasan, IRS
THIS write-up is a response to the article Compensation Cess - Is Advance Ruling even an option? carried in this column.
The learned author concludes -
Thus, the question which needs to be answered and settled is whether the Government while drafting Section 11 purposefully restricted its scope leading to no right of approaching advance ruling authority for compensation cess issue or it is merely a matter of interpretation and Section 11 borrows all the provisions of CGST Act including advance ruling.
My views are as follows -
CGST Act, 2017 provides for an applicant desirous of obtaining an advance ruling, to make the application before the Authority of Advance Ruling on certain questions specified under Section 97(2) of the CGST Act.
Compensation cess is governed by the Goods and Services Tax (Compensation to States) Act, 2017.
According to Section 8 of the said Act, compensation cess is levied and collected in tune with Section 9 of the CGST Act and Section 5 of the IGST Act, as may be applicable.
It is pertinent to mention that Section 11 of the Compensation Cess Act borrows certain provisions from CGST and IGST Acts. The said section reads as follows:
11. (1) The provisions of the Central Goods and Services Tax Act and the rules made thereunder, including those relating to assessment, input tax credit, non-levy, short-levy, interest, appeals, offences and penalties , shall, as far as may be, mutatis mutandis, apply, in relation to the levy and collection of the cess leviable under section 8 on the intra-State supply of goods and services, as they apply in relation to the levy and collection of central tax on such intra-State supplies under the said Act or the rules made thereunder.
(2) The provisions of the Integrated Goods and Services Tax Act, and the rules made thereunder, including those relating to assessment, input tax credit, non-levy, short-levy, interest, appeals, offences and penalties , shall, mutatis mutandis, 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 tax on such inter-State supplies under the said Act or the rules made thereunder.
Based on the above, there are some opinions that all the provisions of CGST/IGST Act will not be applicable to compensation cess.
It is said to be applicable only with specific reference to matters of assessment, input tax credit, non-levy etc.
However, another interpretation is that provisions of CGST Act/IGST Act are limited to the levy. And collection function of the cess alone have been borrowed by the Compensation Cess Act. And, therefore, if a provision of CGST/IGST Act is not related to levy and collection, it will not be applicable to the Compensation Cess Act.
I wonder why these questions when both Section 11 of the Compensation Cess Act and Section 97(2) of the CGST Act have an inclusive clause under them and the same are imported with their full complements via Section 20 by the IGST Act.
Those clauses embrace among the specified list of subjects everything else too.
It covers even a question on which any act or any particular thing done by the applicant whether amounts to a supply of goods or services or both, the key thing to decide any liability to GST.
Section 97(2)(f) says, in fact, that including a question as to whether an applicant requires to be registered or not, can be raised for seeking an advance ruling.
That only shows that even an unregistered person can be an applicant enabled under the Act, to seek an answer as to whether he is required to be registered or not under a given set of conditions.
Further, the fact that Applicant has been defined under Section 95(c) the said Act, to cover any person registered or desirous of obtaining registration does not imply in any way that only certain matters / provisions of the CGST/IGST Act is made applicable to the Compensation Cess Act. (Section 2(2) of the Compensation Cess Act refers)
As a matter of fact, the subject of even an unregistered person, whether required to be registered or not, is covered under Section 97(2)(f) to be specific, only goes to show the sheer sweep of its coverage.
About the Compensation Cess, it is like a bogie and wherever the engine of principal tax goes the bogie has to simply follow the tax as a fraction or percentage of the said Tax.
Where is the need to endow the Compensation Cess Act with a special option to have application to Advance ruling when there is none contemplated under the Scheme. (Statement of Objects and Reasons of the Goods and Services Tax (Compensation to States) Bill, 2107 refers)
It stands for the limited purpose to provide Compensation to the states for the loss of revenue arising on account of implementation of GST for a period of 5 years, in pursuance of Section 18 of the 101 st Constitutional Amendment Act,2016.
The Compensation Cess Act has no independent sphere of taxation to operate and hinges on the levying Sections 9 and Section 5 respectively of the CGST and IGST Acts,even though it has been provided with its own levying Section 8 but has the definite restriction to be levied and collected strictly as provided under those Acts in the Scheme of things under the GST regime.
Once basic GST tax liability question is answered by the Authority for Advance Ruling in the affirmative, the Compensation cess will automatically apply on the basic tax liability determined as per Schedule to Sec 8 read with the relevant Notifications in force.
It has to be simply applied as per Schedule to the Act prescribed Under Section 8(2) of that Act read with relevant Notifications issued from time to time.
It will be applied on such supplies of goods and services as are specified, on the basis of value, quantity or on such basis at such rate on goods as under Notfn. No. 1/2017-GST Comp (Rate) and on services as under Notfn . No.2/2017 GST Comp (Rate) dt 28/6/2017.
The value for charging Compensation cess wherever applicable on all Intra-state and inter-state supplies of goods and Services would be in line with Section 15 of the CGST Act and for the purposes of Imports, in line with Section 3 of Customs Tariff Act.
Even the point of taxation of the compensation cess is made clear - in the case of Imports as at the time of levy of duties of customs under Section 12 of the CA and it is needless to state in case of domestic levies the CGST/IGST Act provisions will govern regarding point of taxation of the said levy of Cess.
It would, therefore, appear that there may be not be a special need for creating an option for answering any questions exclusively on Compensation cess under the Advance Ruling provisions of the CGST Act, once an Advance Ruling on the applicability and all other attendant aspects surrounding the principal levy of GST, is given by the AAR under the GST Laws.
In short, it is worth remembering in this context that except the CGST Act, the rest of the other legislations such as the SGST/UTGST Acts, the IGST Act including the Compensation cess Act, don't enjoy any primacy in the GST regime as the CGST Act does.
To set the matter at rest, I earnestly hope that the affable CBIC comes out with a clarification in the coming days.
(The author is Assistant Commissioner, GST, Chennai & Master Trainer, GST. The views expressed are strictly personal.)
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