GST: Panel to seek extension of deadline from Council on GST Compensation Cess

New Delhi| The Group of Ministers (GoM) on Goods and Services Tax (GST) Compensation Cess, led by Minister of State for Finance Pankaj Chaudhary, on Monday decided to seek six months’ extension from the GST Council to submit the report. This group includes ministers from Assam, Chhattisgarh, Gujarat, Karnataka, Madhya Pradesh, Punjab, Tamil Nadu, Uttar Pradesh and West Bengal. This group was ordered to submit its report to the GST Council by 31 December.

According to an official, the GOM has decided that there are several legal issues related to compensation cess, which will have to be discussed in detail, which will take time. Therefore, he decided to seek an extension of time for the submission of the report to the Council. According to the official, an extension of 5-6 months can be sought from the GST Council.

“We have until March 2026 to make a final decision on the cess, so there is still more time to discuss it, and we may also have to seek a legal opinion on the issue”, the official added. In 2022 the GST Council decided to extend the cess until March 2026

In the GST regime, an additional compensation cess of 28 per cent is levied on luxury, sin and demerit goods. The amount received from this cess was used to compensate the states for the revenue loss after the implementation of GST. This cess was previously implemented for 5 years, but in 2022 the GST Council decided to extend it till March 2026, to compensate for the revenue losses incurred during Covid.

With only one and a half years left for the cess to expire, the GST Council at its 54th meeting on 9 September decided to set up a GOM to decide the future course of the cess. At the last meeting of the GOM on 16 October, the states recalled the discussions held at the 7th GST Council meeting held on 22-23 December, 2016, in which the then Union Finance Minister Arun Jaitley said that the compensation cess could be subsumed into GST after five years According to sources, states suggested that once the decision is taken to merge cess with taxes, no new goods should be added to the list of luxury, sin and demerit items.

According to sources, the states were of the view that the compensation cess expires in March 2026, so the only way to reorganize it is to merge the levy with taxes and bring in separate tax rates for the items on which the cess is levied.