implementation of GST as the sole indirect tax in place of the earlier multiple
taxation legislations has reasonably raised a probability of States losing a part
of their revenue from tax, in response to which the Centre has enacted the
Compensation to States Act[i]
along with the principal Acts of GST.[ii]
Here we analyze the provisions relating to the said Act, to get a brief picture
of how the scheme will be put to effect.
intends to provide for compensation to the States for the loss of revenue
arising on account of implementation of the goods and services tax. For the
purposes of calculation and determination of the compensation amount, the Base
year revenue of the State is calculated in accordance with the Act. The base
year revenue for a State is the sum of the revenue collected by the State and
the local bodies during the base year, on account of the taxes levied by the
respective State or Union net of refunds with respect to the taxes subsumed
into GST such as VAT, Sales tax, Purchase Tax, entry tax, octroi, local body
tax, etc. The projected revenue for any year in a State is to be calculated by
applying the projected growth rate over the base year revenue of that State,
and the projected growth rate has been fixed at 14%.
under the Act is payable to any State during the transition period, and the
calculation and release is to be done at the end of every two months, and an
annual final calculation is made at the end of every financial year by the CAG. Any excess amount released to any
State during a financial year will be adjusted against the compensation in the
subsequent financial year.
The manner of
calculation of the loss of revenue is also elaborated as:
The projected revenue that could have been
earned by the State in absence of the goods and services tax till the end of the relevant two
months period of the respective financial year shall be calculated on a
pro-rata basis as a percentage of the total projected revenue for any financial
year during the transition period[iii].
The actual revenue collected by a State till the end of relevant
two months period in any financial year during the transition period will be the
actual revenue from State tax collected by the State, net of refunds given by
the State; the integrated goods and services tax apportioned to that State, as
certified by the Principal Chief Controller of Accounts of the Central Board of
Excise and Customs;
and any collection of taxes levied by the said State, under the Acts specified
in sub-section (4) of section 5, net of refund of such taxes[iv].
The provisional compensation payable to any
State at the end of the relevant two months period in any financial year shall
be the difference between the projected revenue till the end of the relevant
period and the actual revenue collected by a State in the said period reduced
by the provisional compensation paid to a State till the end of the previous
two months period in the said financial year during the transition period[v].
In case no compensation is due to be released in any
financial year, or any excess amount has been released to a State in the
previous year, the State is bound to refund the same to the Centre. Every
taxable person making a taxable supply of goods or services or both is bound
the pay the Cess and furnish Returns to the Authorities as required. The Cess
amounts collected under the Act is to be deposited into the Goods and Services
Tax Compensation Fund, which is a part of the public account of India, and all
the payments of compensations under s. 7 are to be made from this Fund.
GOODS AND SERVICES TAX (COMPENSATION TO STATES) ACT, 2017 NO. 15 OF 2017
CGST Act (No. 12 of 2017), IGST Act (No.13 of 2017), Union Territory Goods and
Services Tax Act 2017 (No. 14 of 2017)
Supra 1, S. 7 (4), (a)