Important Keyword: Notification No. 02/2021 - Compensation Cess (Rate), GST Compensation Cess 2021, HSN 2403 99 90 Amendment, Notification 1/2017 Compensation Cess Update, Tobacco GST Cess, Aircraft GST Cess, Finodha GST Compliance, GST 2022 Updates, Compensation to States Act 2017.
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[F. No. CBIC-190354/281/2021-TRU Section CBEC]
GOVERNMENT OF INDIA
MINISTRY OF FINANCE
(Department of Revenue)
New Delhi, the 28th December, 2021
Notification No. 02/2021 - Compensation Cess (Rate): Seeks to amend Notification No 1/2017- Compensation Cess (Rate) dated 28.06.2017.
[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)]
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 further 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,
- against S. No. 25, for the entry in column (2), the entry “2403 91 00 or 2404 11 00” shall be substituted;
- against S. No. 37, for the entry in column (2), the entry “2403 99 90 or 2404 11 00 or 2404 19 00” shall be substituted;
- against S. No. 38, for the entry in column (2), the entry “2403 99 90 or 2404 11 00 or 2404 19 00” shall be substituted;
- against S. No. 54, for the entry in column (2), the entry “8802 or 8806” shall be substituted
2. This notification shall come into force on the 1st day of January, 2022.
(Rajeev Ranjan)
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, Sub- section (i), vide number G.S.R. 720(E), dated the 28th June, 2017, and was last amended vide notification No. 1/2021-Compensation Cess (Rate), dated the 30th September, 2021, published vide number G.S.R.710(E), dated the 30th September, 2021.
📚 Frequently Asked Questions (FAQs): Notification No. 02/2021 - Compensation Cess (Rate)
Q1: What is Notification No. 02/2021 - Compensation Cess (Rate)?
Answer:
This notification updates the Compensation Cess schedule under Notification No. 1/2017 - Compensation Cess (Rate) by substituting certain HSN codes for goods such as tobacco products and aircrafts.
It was issued under Section 8(2) of the GST (Compensation to States) Act, 2017, ensuring accurate cess categorization and uniform taxation.
Q2: What is the effective date of the notification?
Answer:
The notification came into effect on 1st January 2022, as stated in Clause 2 of the Gazette publication.
Q3: What is the purpose of the Compensation Cess under GST?
Answer:
The Compensation Cess ensures that states are reimbursed for revenue losses caused by the implementation of GST, especially in the initial transition period.
It applies to luxury, demerit, and sin goods, such as tobacco, coal, aerated drinks, and cars.
🔍 Legal Reference: Section 8 of the Goods and Services Tax (Compensation to States) Act, 2017 empowers the government to levy and amend such cess rates.
Q4: How does this amendment impact tobacco manufacturers?
Answer:
Tobacco manufacturers and importers must now:
Use the newly substituted HSN codes while filing GST returns.
Apply cess rates as prescribed for respective products under revised entries.
Update invoicing and ERP systems for compliance from 1st January 2022.
🧾 For accurate compliance, use Finodha GST Return Filing.
Q5: Why were new HSN codes introduced for tobacco?
Answer:
The change aims to:
Standardize classification across CGST, IGST, and Compensation Cess notifications.
Remove ambiguity between smoking tobacco and non-smoking substitutes.
Improve tracking of cess revenue collection for tobacco-based products.
Q6: How does this affect the aviation industry?
Answer:
By updating Serial No. 54, the HSN codes for aircrafts now include 8802 and 8806, ensuring that all aircrafts and related parts fall under the same cess category.
This aids:
Defense and civil aviation clarity,
Import/export alignment, and
Avoidance of classification disputes during GST filings.
✈️ Aviation businesses can consult Finodha Business Setup Services for compliance support.
Q7: Which law governs the Compensation Cess mechanism?
Answer:
The cess is governed by the Goods and Services Tax (Compensation to States) Act, 2017, especially:
Section 8(2): Empowers the Central Government to modify cess rates on Council recommendations.
Section 10: Specifies distribution of collected cess to states.
Q8: How do these changes affect GST return filing?
Answer:
Businesses dealing in the affected goods must:
Update product HSN mappings in GSTR-1 and GSTR-3B.
Reflect correct cess computation to avoid errors or notices.
Cross-check cess applicability before filing.
💼 Simplify your process using Finodha’s GST Compliance Platform.
Q9: What happens if the old HSN codes are used after January 2022?
Answer:
Using outdated HSN codes may:
Trigger mismatch in GST return data,
Invite departmental scrutiny, and
Lead to interest and penalties under Section 50 and 73 of the CGST Act.
Hence, updating your accounting system is crucial.
Q10: What are the cess rates on tobacco-related products after this amendment?
Answer:
The cess rates remain the same as before the amendment; only HSN codes were revised.
However, cess continues to apply as:
Tobacco and cigars: 65% plus ₹4,170 per 1,000 sticks.
Chewing tobacco: 160% ad valorem.
Cigarettes and substitutes: Between 5% and 36%, depending on length and category.
📊 For complete cess details, visit Finodha GST Rate Advisory.
Q11: How will this help GST administration?
Answer:
This amendment will:
Enhance data uniformity across Central and State GST systems.
Improve cess monitoring and anti-evasion mechanisms.
Facilitate seamless refund and audit processing.
Q12: What is the impact on importers and exporters?
Answer:
Importers/exporters dealing in tobacco or aircraft must:
Use updated HSN codes for Bill of Entry or Shipping Bills.
Ensure accurate cess computation for goods entering or leaving India.
Maintain documentary evidence of code updates.
Need help updating import records? Check Finodha DSC & Compliance Services.
Q13: Was there any previous amendment to Notification No. 1/2017 before this?
Answer:
Yes ✅
The last amendment was made via Notification No. 01/2021 - Compensation Cess (Rate) dated 30th September 2021 (G.S.R. 710(E)).
Notification No. 02/2021 continues that update cycle, refining the cess structure for high-value goods.
Q14: How can businesses ensure compliance with this change?
Answer:
To stay compliant:
Update accounting software with revised HSN codes.
Train your accounting team on cess applicability.
File returns accurately on time.
📅 Start accurate GST filings with Finodha GST Return Filing.
🏁 Conclusion
Notification No. 02/2021 - Compensation Cess (Rate) is a key step toward harmonizing HSN classifications and strengthening cess administration.
By aligning product categories for tobacco and aircraft, the notification promotes transparency, uniformity, and easier GST compliance.
✅ To ensure your business remains compliant, use Finodha’s GST Filing Services and keep your GST data updated as per new cess schedules.
Download PDF: Notification No. 02/2021 - Compensation Cess (Rate)
More Information: https://taxinformation.cbic.gov.in/
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