Notification No. 03/2019 - Compensation Cess (Rate) Updated

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Notification No. 03/2019 - Compensation Cess (Rate): Seeks to disallow the refund of compensation cess in case of inverted duty structure for tobacco and manufactured tobacco substitutes.

[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 clause (ii) of the proviso to sub-section (3) of section 54 of the Central Goods and Services Tax Act, 2017 (12 of 2017) read with sub-section (2) of Section 9 of the Goods and Services Tax (Compensation to States) Act, 2017, the Central Government, on the recommendations of the Council,

Hereby notifies the goods, the description of which is specified in column (3) of the Table below and falling under the tariff item, heading, sub-heading or Chapter, as the case may be, as specified in the corresponding entry in column (2) of the said Table, in respect of which no refund of unutilized input tax credit of compensation cess shall be allowed, where the credit has accumulated on account of rate of compensation cess on inputs being higher than the rate of compensation cess on the output supplies of such goods (other than nil rated or fully exempt supplies).

TABLE

S. No.	Tariff item, heading, subheading or Chapter	Description of Goods
(1)	(2)	(3)
1.	24	Tobacco and manufactured tobacco substitutes

Explanation. –

In this Table, “tariff item”, “sub-heading”, “heading” and “Chapter” shall mean respectively a tariff item, sub-heading, heading or chapter, as specified in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).

The rules for the interpretation of the First Schedule to the said Customs Tariff Act, 1975, including the Section and Chapter Notes and the General Explanatory Notes of the First Schedule shall, so far as may be, apply to the interpretation of this notification.

(Ruchi Bisht)
Under Secretary to the
Government of India

📚 Frequently Asked Questions (FAQs): Notification No. 03/2019 - Compensation Cess (Rate)

Q1: What is Notification No. 03/2019 - Compensation Cess (Rate)?

Answer:
It disallows refund of unutilised compensation cess for tobacco products under inverted duty structure.

Q2: From when is this notification effective?

Answer:
From 30 September 2019.

Q3: Which goods are covered?

Answer:
Tobacco
Manufactured tobacco substitutes
(Chapter 24)

Q4: What is an inverted duty structure?

Answer:
When input tax rate is higher than output tax rate, leading to excess ITC.

Q5: Can tobacco manufacturers claim cess refund now?

Answer:
❌ No. Refund is disallowed under this notification.

Q6: Does this apply to GST refund also?

Answer:
No. It applies specifically to compensation cess refund.

Q7: Which section allows government to block refunds?

Answer:
Section 54(3) of the CGST Act.

Q8: Why was refund disallowed for tobacco?

Answer:
To:
Prevent revenue loss
Discourage sin goods
Maintain cess collections

Q9: Does this affect other industries?

Answer:
No. It specifically applies to tobacco products.

Q10: Can refund still be claimed for exports?

Answer:
Export-related refunds follow separate provisions.

Q11: Do tobacco businesses still need GST registration?

Answer:
Yes. GST registration is mandatory.
👉 https://finodha.in/online-gst-registration/

Q12: Do they need to file GST returns?

Answer:
Yes. Regular GST and cess returns must be filed.
👉 https://finodha.in/gst-return-filing/

Q13: What happens to accumulated cess credit?

Answer:
It remains in the electronic credit ledger but cannot be refunded.

Q14: What records should tobacco manufacturers maintain?

Answer:
Input invoices
Cess payment records
Production details
GST returns

Q15: How can Finodha help tobacco businesses?

Answer:
Finodha offers:
✔ GST registration
✔ Compensation cess compliance
✔ Return filing
✔ Business setup support
👉 https://finodha.in/gst-compliance/
👉 https://finodha.in/setup-business/

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