RATE OF COMPENSATION CESS ON MOTOR VEHICLES

[Mr. M. GOVINDARAJAN]

Compensation cess

Compensation cess is a levy in addition to GST on certain goods and services.  The cess is to be levied only for five years from the effective date i.e., 01.07.2017.  Since the indirect taxes of States have been subsumed in GST, there might be loss to the States for the initial period.  To compensate such loss the Central Government proposed to levy Compensation Cess which will be only used to compensate to States/Union Territories according to the procedure prescribed in Compensation laws.

Levy of Compensation Cess

Section 8 of the Compensation Act provides for the levy of compensation cess on inter-State as well as intra-State supply.  Section 8(1) of the Act provides that there shall be levied a cess on such intra-State supplies of goods or services or both, as provided for in section 9 of the Central Goods and Services Tax Act, and such inter-State supplies of goods or services or both as provided for in section 5 of the Integrated Goods and Services Tax Act, and collected in such manner as may be prescribed, on the recommendations of the Council, for the purposes of providing compensation to the States for loss of revenue arising on account of implementation of the goods and services tax with effect from the date from which the provisions of the Central Goods and Services Tax Act is brought into force, for a period of 5 years or for such period as may be prescribed on the recommendations of the Council.

No cess shall be leviable on supplies made by a taxable person who has decided to opt for composition levy under section 10 of the Central Goods and Services Tax Act.

There is no uniform rate for CESS like that CGST, SGST and IGST which may be 5%, 12%, 18% and 28%. 

Compensation Cess on motor vehicles

Entry No. 5 of the Schedule to the Compensation Act provides for the levy of compensation on Motor cars and other motor vehicles principally designed for the transport of persons (other than motor vehicles for the transport of ten or more persons, including the driver), including station wagons and racing cars under heading 8703.  The rate leviable on such cars is 15% ad valorem.  This rate has been enhanced to 25% vide Goods and Services Tax (Compensation to States) Amendment Act, 19.01.2018 with effect from 19.01.2018.

Vide the Goods and Services Tax (Compensation to States) Amendment Act, 2018 inserted a new Entry No. 4A in the Schedule.  According to this entry ‘Motor vehicles for the transport of not more than 13 persons, including the driver’ (8702 10, 8702 20, 8702 30 or 8702 90 shall be liable @ 25% ad valorem.

Cess Rate vide Notification No. 01/2017-Compensation Cess (Rate)

The Central Government notified the rate of cess as specified in the Schedule appended to this notification, that shall be levied on the intra-State supplies or inter-State supplies of such goods. This notification has been amended from time to time.  The cess rate on motor vehicles as amended is furnished as below:

NIL Rate

The following motor vehicles are subjected to NIL rate of cess-

• All old and used motor vehicles - 87 (Not applicable if the supplier of such goods has availed input tax credit, CENVAT credit, or the input tax credit of Value Added Tax or any other taxes paid on such vehicles.
• Fuel Cell Motor Vehicles – under heading 87;
• Motor vehicles cleared as ambulances duly fitted with all the fitments, furniture and accessories necessary for an ambulance from the factory manufacturing such motor vehicles - 8702 or 8703;
• Electrically operated vehicles, including three wheeled electric motor vehicles - 8703 10 10, 8703 80;
• Three wheeled vehicles – 8703;
• Following motor vehicles of length not exceeding 4000 mm, namely: -

• Petrol, Liquefied petroleum gases (LPG) or compressed natural gas (CNG) driven vehicles of engine capacity not exceeding 1200 cc; and
• Diesel driven vehicles of engine capacity not exceeding 1500 cc for persons with orthopedic physical disability, subject to the condition that an officer not below the rank of Deputy Secretary to the Government of India in the Department of Heavy Industries certifies that the said goods shall be used by the persons with orthopedic physical disability in accordance with the guidelines issued by the said Department – 8703;

• Following Vehicles, with both spark-ignition internal combustion reciprocating piston engine and electric motor as motors for propulsion (8703 40, 8703 60)-

• Motor vehicles cleared as ambulances duly fitted with all the fitments, furniture and accessories necessary for an ambulance from the factory manufacturing such motor vehicles;
•  Three wheeled vehicles;
• Motor vehicles of engine capacity not exceeding 1200cc and of length not exceeding 4000 mm

(Motor vehicles other than those mentioned above – 15%)

( For the purposes of this entry, the specification of the motor vehicle shall be determined as per the Motor Vehicles Act, 1988 and the rules made there under.)

• Following Vehicles, with both compression-ignition internal combustion piston engine [diesel-or semi diesel] and electric motor as motors for propulsion (8703 50, 8703 70)-

• Motor vehicles cleared as ambulances duly fitted with all the fitments, furniture and accessories necessary for an ambulance from the factory manufacturing such motor vehicles;
• Three wheeled vehicles;
• Motor vehicles of engine capacity not exceeding 1500 cc and of length not exceeding 4000 mm

(Motor vehicles other than those mentioned above – 15%)

( For the purposes of this entry, the specification of the motor vehicle shall be determined as per the Motor Vehicles Act, 1988 and the rules made there under.)

• Hydrogen vehicles based on fuel cell tech and of length not exceeding 4000 mm.

( For the purposes of this entry, the specification of the motor vehicle shall be determined as per the Motor Vehicles Act, 1988 and the rules made there under.)

Other rates

1. Petrol, Liquefied petroleum gases (LPG) or compressed natural gas (CNG) driven motor vehicles of engine capacity not exceeding 1200cc and of length not exceeding 4000 mm - 8702, 8703 21 or 8703 22 – 1%;
2. Diesel driven motor vehicles of engine capacity not exceeding 1500 cc and of length not exceeding 4000 mm - 8702, 8703 31 – 3%;
3. Motor vehicles for the transport of not more than 13 persons, including the driver, other than the vehicles of the description mentioned in S. No.1 and 2 - 8702 10, 8702 20, 8702 30, 8702 90 – 15%;
4. Motor vehicles of engine capacity not exceeding 1500 cc – 8703 – 17%;
5. Motor vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility vehicles.- 22%  (For the purposes of this entry, SUV includes a motor vehicle of length exceeding 4000 mm and having ground clearance of 170 mm. and above.);
6. Motor vehicles of engine capacity exceeding 1500 cc other than motor vehicles specified against entry at S. No 5 – 8703 – 20%.

Services

• Notification No.02/2017-Compensation Cess (Rate), dated 28.06.2017 – Entry No. 2A - Leasing of motor vehicles purchased and leased prior to 1st July 2017 - Chapter 99 - 65 % of  the rate of cess as applicable on supply of similar goods involving transfer of title in goods. (will not apply after 01.07.2020)
• Vide Notification No. 07/2017-Compensation Cess (Rate), dated 13.10.2017 the Central Government, notified the rate of cess for-

• Motor Vehicles – 8702, 8703 - 65% of cess applicable otherwise on such goods under Notification No. 1/2017- Compensation Cess (Rate) dated, 28th June, 2017 – subject to the condition that The Motor Vehicles was purchased by the lesser prior to 1st July, 2017 and supplied on lease before 1st July, 2017
• Motor Vehicles – 8702, 8703 - 65% of cess applicable otherwise on such goods under Notification No. 1/2017- Compensation Cess (Rate) dated, 28th June, 2017 subject to the following conditions-

• The supplier of Motor Vehicle is a registered person.
• Such supplier had purchased the Motor Vehicle prior to 1st July, 2017 and has not availed input tax credit of central excise duty, Value Added Tax or any other taxes paid on such vehicles.

This notification will not apply after 01.07.2020.