Notification No. 01/2018 - Compensation Cess(Rate) Explained

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Notification No. 01/2018 - Compensation Cess (Rate): seeks to amend Notification No.1/2017-Compensation Cess (Rate).

GST: [TO BE PUBLISHED IN PART II, SECTION 3, SUB-SECTION (i) OF THE GAZETTE OF INDIA, EXTRAORDINARY]

G.S.R. (E).- In exercise of the powers conferred by sub-section (2) of section 8 of the Goods and Services Tax (Compensation to States) Act, 2017 (15 of 2017), the Central Government, on the recommendations of the Council, hereby makes the following amendments in the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No. 1/2017-Compensation Cess (Rate), dated the 28th June, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 720 (E), dated the 28th June, 2017, namely,-

In the said notification, in the Schedule, -

after S. No. 42 and the entries relating thereto, the following serial numbers and the entries shall be inserted

(1)	(2)	(3)	(4)
42A.	87	All old and used motor vehicles Explanation: Nothing contained in this entry shall apply if the supplier of such goods has availed input tax credit as defined in clause (63) of section 2 of the Central Goods and Services Tax Act, 2017, CENVAT credit as defined in CENVAT Credit Rules, 2004, or the input tax credit of Value Added Tax or any other taxes paid on such vehicles.	NIL

in S. No. 43, for the entry in column (2), the entry “8702 or 8703”, shall be substituted;

(Ruchi Bisht)
Under Secretary to the
Government of India

Note: The principal notification No.1/2017-Compensation Cess (Rate) dated the 28th June, 2017 was published in the Gazette of India, Extraordinary, Part II, Section 3, Subsection (i), vide number G.S.R. 720(E), dated the 28th June, 2017 and last amended vide notification No. 6/2017-, Compensation Cess (Rate) dated the 13^th October, 2017, published vide number G.S.R.1282(E), dated the 13th October, 2017.

📚 Frequently Asked Questions (FAQs): Notification No. 01/2018 Compensation Cess (Rate)

Q1: What is Notification No. 01/2018 - Compensation Cess (Rate)?

Answer:
It is a GST amendment notification dated 25 January 2018 granting NIL Compensation Cess on old and used motor vehicles subject to conditions.

Q2: From when is this notification applicable?

Answer:
Effective from 25 January 2018.

Q3: Does this apply to all used vehicles?

Answer:
Yes, but only if ITC was NOT claimed on such vehicle.

Q4: What happens if ITC was claimed earlier?

Answer:
Then NIL rate will not apply and Compensation Cess must be charged.

Q5: Is GST also NIL on used vehicles?

Answer:
No. Only Compensation Cess may be NIL. GST is applicable as per margin scheme rules under Rule 32(5) of CGST Rules.

Q6: What is Section 2(63) referred in the notification?

Answer:
Section 2(63) of CGST Act defines “Input Tax Credit”.

Q7: Can an individual selling personal car charge GST?

Answer:
No, if not engaged in business. But dealers must comply with GST provisions.

Q8: What is the significance of HSN 8702 or 8703?

Answer:
It clarifies classification for motor vehicles including passenger vehicles.

Q9: Does this notification affect electric vehicles?

Answer:
If EV is old and ITC not claimed, NIL cess may apply.

Q10: Is Compensation Cess still applicable on new vehicles?

Answer:
Yes. New motor vehicles may attract cess up to 22% depending on engine capacity.

Q11: How to report NIL cess in GSTR-1?

Answer:
Mention correct HSN and show Compensation Cess as NIL.
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Q12: What if cess was wrongly collected after Jan 2018?

Answer:
Credit note may be issued under Section 34 of CGST Act.

Q13: Is this notification still valid in 2025?

Answer:
Yes, unless superseded by new amendment.

Q14: Does margin scheme apply here?

Answer:
Yes, used car dealers often apply Rule 32(5) – Margin Scheme for GST calculation.

Q15: How can businesses ensure compliance in vehicle resale?

Answer:
Maintain ITC records, purchase invoices, and proper classification.
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