I have a suggestion that can increase the GST Compensation Cess collected by Union Government as well as reduce the compliance burden of GST Compensation Cess on small and marginal traders.
The place of supply rules under GST Law are important for determination and appropriation to respective states where actually consumption of goods and services takes place.
However, GST Compensation Cess being a Cess levied by Union Government, accrues wholly to the Union Government and is disbursed to the states on the basis of shortfall of projected GST Revenue. Place of supply rules to decide gst cess revenue accrual to respective states is without need.
GST Compensation Cess if levied on MRP affixed by manufacturer as a single stage tax, will increase revenue for the Union Government due to collection of full tax on MRP by manufacturer and exemption of GST Compensation Cess on downstream trade and consequently reduced compliance.
This is because last mile delivery of items under GST Compensation Cess like aerated beverages and tobacco products are small and marginal traders such as ‘panwala’ or neighbourhood ‘Mom n Pop stores’ who have largely not taken GST registration due to them falling below 20 lakh turnover limits. Levying GST Compensation Cess on transaction value leads to a situation that significant margins of these small and marginal traders go untaxed while simultaneously burdening mid sized traders with GST Compensation Cess compliance burden.