What is compensation cess? The modalities of the compensation | All English Newspapers

What is compensation cess?
The modalities of the compensation cess were specified by the GST (Compensation to States) Act, 2017.
This Act assumed that the GST revenue of each State would grow at 14% every year, from the amount collected in 2015-16, through all taxes subsumed by the GST.
• A State that had collected tax less than this amount in any year would be compensated for the shortfall. The amount would be paid every two months based on provisional accounts, and adjusted every year after the State’s accounts were audited by the Comptroller and Auditor General.
This scheme is valid for five years, i.e., till June 2022.
Compensation cess fund:
A compensation cess fund was created from which States would be paid for any shortfall. An additional cess would be imposed on certain items and this cess would be used to pay compensation.
• The items are pan masala, cigarettes and tobacco products, aerated water, caffeinated beverages, coal and certain passenger motor vehicles.
The GST Act states that the cess collected and “such other amounts as may be recommended by the [GST] Council” would be credited to the fund.