Notification No. 01/2022 – Compensation Cess | GST Levy & Rules

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This notification brings into force the Goods and Services Tax (Period of Levy and Collection of Cess) Rules, 2022. It outlines the framework for continuing the levy and collection of Compensation Cess under GST.

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The GST Compensation Cess was extended to help States meet revenue shortfalls due to GST implementation. This ensures financial stability for States, as recommended by the GST Council.

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Defines the period for which Compensation Cess will continue.
Specifies categories of goods and services on which cess applies.
Provides compliance rules for businesses supplying such goods/services.

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Compensation Cess applies mainly to luxury goods and sin goods such as:Tobacco products 🚬
Aerated drinks 🥤
Motor vehicles 🚗
Coal and lignite ⛏️

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The rules under this notification are effective from 1st July 2022 (or as specified in the official text), ensuring continuity in cess collection.

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Businesses dealing in goods/services liable for cess must:
Correctly apply cess rates on invoices.
File GST Returns including cess liability.
Maintain compliance records as per the 2022 Rules.

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No. Compensation Cess is not available as ITC to offset against output GST liability (except in specific export-related cases). Businesses must pay cess in cash or through accumulated credits of Compensation Cess itself.

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As per the GST Council’s recommendation, the cess will continue till March 2026 to allow repayment of borrowings made for State compensation during the COVID-19 pandemic.

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Businesses can seek professional support from Finodha GST Experts for:
GST Registration in Union Territories or States.
Income Tax Return filing.
Private Limited Company Registration.
Digital Signature Certificate.

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It ensures a legal framework for the continuation of GST Compensation Cess. Without it, States would face severe revenue shortages, and businesses would lack clarity on cess applicability.