The Goods and Services Tax (Compensation to States) Act: EximGuru.com

New Delhi, the 12th April, 2017/Chaitra 22, 1939 (Saka)

The following Act of Parliament received the assent of the President on the 12th April, 2017, and is hereby published for general information:—

THE GOODS AND SERVICES TAX (COMPENSATION TO STATES)
ACT, 2017

NO. 15 OF 2017

[12th April, 2017.]

An Act to provide for compensation to the States for the loss of revenue arising on account of implementation of the goods and services tax in pursuance of the provisions of the Constitution (One Hundred and First Amendment) Act, 2016.

BE it enacted by Parliament in the Sixty-eighth Year of the Republic of India as follows:—

BE it enacted by Parliament in the Sixty-eighth Year of the Republic of India as follows:—
1. (1) This Act may be called the Goods and Services Tax (Compensation to States)
Act, 2017.
(2) It extends to the whole of India.
(3) It shall come into force on such date as the Central Government may, by notification
in the Official Gazette, appoint.
2. (1) In this Act, unless the context otherwise requires,—
(a) “central tax” means the central goods and services tax levied and collected
under the Central Goods and Services Tax Act;

(b) “Central Goods and Services Tax Act” means the Central Goods and Services
Tax Act, 2017;
(c) “cess” means the goods and services tax compensation cess levied under
section 8;
(d) “compensation” means an amount, in the form of goods and services tax
compensation, as determined under section 7;
(e) “Council” means the Goods and Services Tax Council constituted under the
provisions of article 279A of the Constitution;
(f) “Fund” means the Goods and Services Tax Compensation Fund referred to in
section 10;
(g) “input tax” in relation to a taxable person, means,––
(i) cess charged on any supply of goods or services or both made to him;
(ii) cess charged on import of goods and includes the cess payable on
reverse charge basis;
(h) “Integrated Goods and Services Tax Act” means the Integrated Goods and
Services Tax Act, 2017;
(i) “integrated tax” means the integrated goods and services tax levied and
collected under the Integrated Goods and Services Tax Act;
(j) “prescribed” means prescribed by rules made, on the recommendations of the
Council, under this Act;
(k) “projected growth rate” means the rate of growth projected for the transition
period as per section 3;
(l) “Schedule” means the Schedule appended to this Act;
(m) “State” means,––
(i) for the purposes of sections 3, 4, 5, 6 and 7 the States as defined under
the Central Goods and Services Tax Act; and
(ii) for the purposes of sections 8, 9, 10, 11, 12, 13 and 14 the States as
defined under the Central Goods and Services Tax Act and the Union territories
as defined under the Union Territories Goods and Services Tax Act;
(n) “State tax” means the State goods and services tax levied and collected
under the respective State Goods and Services Tax Act;
(o) “State Goods and Services Tax Act” means the law to be made by the State
Legislature for levy and collection of tax by the concerned State on supply of goods or
services or both;
(p) “taxable supply’’ means a supply of goods or services or both which is
chargeable to the cess under this Act;
(q) “transition date” shall mean, in respect of any State, the date on which the
State Goods and Services Tax Act of the concerned State comes into force;
(r) “transition period” means a period of five years from the transition date; and
(s) “Union Territories Goods and Services Tax Act” means the Union Territories
Goods and Services Tax Act, 2017.
(2) The words and expressions used and not defined in this Act but defined in the
Central Goods and Services Tax Act and the Integrated Goods and Services Tax Act shall
have the meanings respectively assigned to them in those Acts.

3. The projected nominal growth rate of revenue subsumed for a State during the
transition period shall be fourteen per cent. per annum.
4. For the purpose of calculating the compensation amount payable in any financial
year during the transition period, the financial year ending 31st March, 2016, shall be taken as
the base year.
5. (1) Subject to the provision of sub-sections (2), (3), (4), (5) and (6), the base year
revenue for a State shall be 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 and net
of refunds, with respect to the following taxes, imposed by the respective State or Union,
which are subsumed into goods and services tax, namely:––
(a) the value added tax, sales tax, purchase tax, tax collected on works contract,
or any other tax levied by the concerned State under the erstwhile entry 54 of List-II
(State List) of the Seventh Schedule to the Constitution;
(b) the central sales tax levied under the Central Sales Tax Act, 1956;
(c) the entry tax, octroi, local body tax or any other tax levied by the concerned
State under the erstwhile entry 52 of List-II (State List) of the Seventh Schedule to the
Constitution;
(d) the taxes on luxuries, including taxes on entertainments, amusements, betting
and gambling or any other tax levied by the concerned State under the erstwhile entry
62 of List-II (State List) of the Seventh Schedule to the onstitution;
(e) the taxes on advertisement or any other tax levied by the concerned State
under the erstwhile entry 55 of List-II (State List) of the Seventh Schedule to the
Constitution;
(f) the duties of excise on medicinal and toilet preparations levied by the Union
but collected and retained by the concerned State Government under the erstwhile
article 268 of the Constitution;
(g) any cess or surcharge or fee leviable under entry 66 read with entries 52, 54,
55 and 62 of List-II of the Seventh Schedule to the Constitution by the State Government
under any Act notified under sub-section (4),
prior to the commencement of the provisions of the Constitution (One Hundred and First
Amendment) Act, 2016:
Provided that the revenue collected during the base year in a State, net of refunds,
under the following taxes shall not be included in the calculation of the base year revenue for
that State, namely:—
(a) any taxes levied under any Act enacted under the erstwhile entry 54 of List-II
(State List) of the Seventh Schedule to the Constitution, prior to the coming into force
of the provisions of the Constitution (One Hundred and First Amendment) Act, 2016,
on the sale or purchase of petroleum crude, high speed diesel, motor spirit (commonly
known as petrol), natural gas, aviation turbine fuel and alcoholic liquor for human
consumption;
(b) tax levied under the Central Sales Tax Act, 1956, on the sale or purchase of
petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural
gas, aviation turbine fuel and alcoholic liquor for human consumption;
(c) any cess imposed by the State Government on the sale or purchase of
petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural
gas, aviation turbine fuel and alcoholic liquor for human consumption; and
(d) the entertainment tax levied by the State but collected by local bodies, under
any Act enacted under the erstwhile entry 62 of List-II (State List) of the Seventh
Schedule to the Constitution, prior to coming into force of the provisions of the
Constitution (One Hundred and First Amendment) Act, 2016.

(2) In respect of the State of Jammu and Kashmir, the base year revenue shall include
the amount of tax collected on sale of services by the said State Government during the base
year.
(3) In respect of the States mentioned in sub-clause (g) of clause (4) of article 279A of
the Constitution, the amount of revenue foregone on account of exemptions or remission
given by the said State Governments to promote industrial investment in the State, with
respect to such specific taxes referred to in sub-section (1), shall be included in the total base
year revenue of the State, subject to such conditions as may be prescribed.
(4) The Acts of the Central Government and State Governments under which the
specific taxes are being subsumed into the goods and services tax shall be such as may be
notified.
(5) The base year revenue shall be calculated as per sub-sections (1), (2), (3) and (4)
on the basis of the figures of revenue collected and net of refunds given in that year, as
audited by the Comptroller and Auditor-General of India.
(6) In respect of any State, if any part of revenues mentioned in sub-sections (1), (2),
(3) and (4) are not credited in the Consolidated Fund of the respective State, the same shall
be included in the total base year revenue of the State, subject to such conditions as may be
prescribed.
6. The projected revenue for any year in a State shall be calculated by applying the
projected growth rate over the base year revenue of that State.
Illustration.—If the base year revenue for 2015-16 for a concerned State, calculated as
per section 5 is one hundred rupees, then the projected revenue for financial year
2018-19 shall be as follows—
Projected Revenue for 2018-19=100 (1+14/100)3
7. (1) The compensation under this Act shall be payable to any State during the
transition period.
(2) The compensation payable to a State shall be provisionally calculated and released
at the end of every two months period, and shall be finally calculated for every financial year
after the receipt of final revenue figures, as audited by the Comptroller and Auditor-General
of India:
Provided that in case any excess amount has been released as compensation to a State
in any financial year during the transition period, as per the audited figures of revenue
collected, the excess amount so released shall be adjusted against the compensation amount
payable to such State in the subsequent financial year.
(3) The total compensation payable for any financial year during the transition period
to any State shall be calculated in the following manner, namely:––
(a) the projected revenue for any financial year during the transition period,
which could have accrued to a State in the absence of the goods and services tax, shall
be calculated as per section 6;
(b) the actual revenue collected by a State in any financial year during the
transition period shall be—
(i) the actual revenue from State tax collected by the State, net of
refunds given by the said State under Chapters XI and XX of the State
Goods and Services Tax Act;
(ii) the integrated goods and services tax apportioned to that State;
and
(iii) any collection of taxes on account of the taxes levied by the
respective State under the Acts specified in sub-section (4) of section 5,
net of refund of such taxes,
as certified by the Comptroller and Auditor-General of India;

(c) the total compensation payable in any financial year shall be the difference
between the projected revenue for any financial year and the actual revenue collected
by a State referred to in clause (b).
(4) The loss of revenue at the end of every two months period in any year for a State
during the transition period shall be calculated, at the end of the said period, in the following
manner, namely:––
(a) 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, calculated in
accordance with section 6.
Illustration.—If the projected revenue for any year calculated in accordance
with section 6 is one hundred rupees, for calculating the projected revenue that could
be earned till the end of the period of ten months for the purpose of this
sub-section shall be 100x(5/6)=Rs.83.33;
(b) the actual revenue collected by a State till the end of relevant two months
period in any financial year during the transition period shall be—
(i) the actual revenue from State tax collected by the State, net of refunds
given by the State under Chapters XI and XX of the State Goods and Services
Tax Act;
(ii) 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
(iii) 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;
(c) 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 in accordance with clause (a) and the actual
revenue collected by a State in the said period as referred to in clause (b), 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.
(5) In case of any difference between the final compensation amount payable to a State
calculated in accordance with the provisions of sub-section (3) upon receipt of the audited
revenue figures from the Comptroller and Auditor-General of India, and the total provisional
compensation amount released to a State in the said financial year in accordance with the
provisions of sub-section (4), the same shall be adjusted against release of compensation to
the State in the subsequent financial year.
(6) Where no compensation is due to be released in any financial year, and in case any
excess amount has been released to a State in the previous year, this amount shall be
refunded by the State to the Central Government and such amount shall be credited to the
Fund in such manner as may be prescribed.
8. (1) 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 interState
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 five years or for such period as may be prescribed on the
recommendations of the Council:

Provided that no such 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.
(2) The cess shall be levied on such supplies of goods and services as are specified in
column (2) of the Schedule, on the basis of value, quantity or on such basis at such rate not
exceeding the rate set forth in the corresponding entry in column (4) of the Schedule, as the
Central Government may, on the recommendations of the Council, by notification in the
Official Gazette, specify:
Provided that where the cess is chargeable on any supply of goods or services or both
with reference to their value, for each such supply the value shall be determined under
section 15 of the Central Goods and Services Tax Act for all intra-State and inter-State
supplies of goods or services or both:
Provided further that the cess on goods imported into India shall be levied and collected
in accordance with the provisions of section 3 of the Customs Tariff Act, 1975, at the point
when duties of customs are levied on the said goods under section 12 of the Customs
Act, 1962, on a value determined under the Customs Tariff Act, 1975.
9. (1) Every taxable person, making a taxable supply of goods or services or both,
shall—
(a) pay the amount of cess as payable under this Act in such manner;
(b) furnish such returns in such forms, along with the returns to be filed under
the Central Goods and Services Tax Act; and
(c) apply for refunds of such cess paid in such form,
as may be prescribed.
(2) For all purposes of furnishing of returns and claiming refunds, except for the form
to be filed, the provisions of the Central Goods and Services Tax Act and the rules made
thereunder, shall, as far as may be, apply in relation to the levy and collection of the cess
leviable under section 8 on all taxable supplies of goods or services or both, as they apply in
relation to the levy and collection of central tax on such supplies under the said Act or the
rules made thereunder.
10. (1) The proceeds of the cess leviable under section 8 and such other amounts as
may be recommended by the Council, shall be credited to a non-lapsable Fund known as the
Goods and Services Tax Compensation Fund, which shall form part of the public account of
India and shall be utilised for purposes specified in the said section.
(2) All amounts payable to the States under section 7 shall be paid out of the Fund.
(3) Fifty per cent. of the amount remaining unutilised in the Fund at the end of the
transition period shall be transferred to the Consolidated Fund of India as the share of
Centre, and the balance fifty per cent. shall be distributed amongst the States in the ratio of
their total revenues from the State tax or the Union territory goods and services tax, as the
case may be, in the last year of the transition period.
(4) The accounts relating to Fund shall be audited by the Comptroller and AuditorGeneral
of India or any person appointed by him at such intervals as may be specified by him
and any expenditure in connection with such audit shall be payable by the Central Government
to the Comptroller and Auditor-General of India.
(5) The accounts of the Fund, as certified by the Comptroller and Auditor-General of
India or any other person appointed by him in this behalf together with the audit report
thereon shall be laid before each House of Parliament.

11. (1) The provisions of the Central Goods and Services Tax Act, and the rules made
thereunder, including those relating to assessment, input tax credit, non-levy, short-levy,
interest, appeals, offences and penalties, shall, as far as may be, mutatis mutandis, apply, in
relation to the levy and collection of the cess leviable under section 8 on the intra-State
supply of goods and services, as they apply in relation to the levy and collection of central
tax on such intra-State supplies under the said Act or the rules made thereunder.
(2) The provisions of the Integrated Goods and Services Tax Act, and the rules made
thereunder, including those relating to assessment, input tax credit, non-levy, short-levy,
interest, appeals, offences and penalties, shall, mutatis mutandis, apply in relation to the
levy and collection of the cess leviable under section 8 on the inter-State supply of goods
and services, as they apply in relation to the levy and collection of integrated tax on such
inter-State supplies under the said Act or the rules made thereunder:
Provided that the input tax credit in respect of cess on supply of goods and services
leviable under section 8, shall be utilised only towards payment of said cess on supply of
goods and services leviable under the said section.
12. (1) The Central Government shall, on the recommendations of the Council, by
notification in the Official Gazette, make rules for carrying out the provisions of this Act.
(2) In particular, and without prejudice to the generality of the foregoing power, such
rules may provide for all or any of the following matters, namely:—
(a) the conditions which were included in the total base year revenue of the
States, referred to in sub-clause (g) of clause (4) of article 279A of the Constitution,
under sub-section (3) of section 5;
(b) the conditions subject to which any part of revenues not credited in the
Consolidated Fund of the respective State shall be included in the total base year
revenue of the State, under sub-section (6) of section 5;
(c) the manner of refund of compensation by the States to the Central Government
under sub-section (6) of section 7;
(d) the manner of levy and collection of cess and the period of its imposition
under sub-section (1) of section 8;
(e) the manner and forms for payment of cess, furnishing of returns and refund
of cess under sub-section (1) of section 9; and
(f) any other matter which is to be, or may be, prescribed, or in respect of which
provision is to be made, by rules.
13. Every rule made under this Act by the Central Government shall be laid, as soon as
may be after it is made, before each House of Parliament, while it is in session, for a total
period of thirty days which may be comprised in one session or in two or more successive
sessions, and if, before the expiry of the session immediately following the session or the
successive sessions aforesaid, both Houses agree in making any modification in the rule or
both Houses agree that the rule should not be made, the rule shall thereafter have effect only
in such modified form or be of no effect, as the case may be; so, however, that any such
modification or annulment shall be without prejudice to the validity of anything previously
done under that rule.
14. (1) If any difficulty arises in giving effect to the provisions of this Act, the Central
Government may, on the recommendations of the Council, by order published in the Official
Gazette, make such provisions, not inconsistent with the provisions of this Act, as appear to
it to be necessary or expedient for removing the difficulty:
Provided that no order shall be made under this section after the expiry of three years
from the commencement of this Act.
(2) Every order made under this section shall, as soon as may be after it is made, be laid
before each House of Parliament.

THE SCHEDULE
[See section 8 (2)]

1. In this Schedule, reference to a “tariff item”, “heading”, “sub-heading” and “Chapter”, wherever they occur, shall mean respectively a tariff item, heading, sub-heading and Chapter in the First Schedule to the Customs Tariff Act, 1975 (51 of 1975).

2. The rules for the interpretation of the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), 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 Schedule.

DR. G. NARAYANA RAJU,
Secretary to the Govt. of India.