Section 8 of the Compensation Cess Act: The Levy and Its Limits

Section 8 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

The provision that levies the cess, and three features of it that decide who pays and how much.

Section 8(1) of the GST (Compensation to States) Act, 2017: there shall be levied a cess on intra-State supplies as provided in s.9 of the CGST Act and inter-State supplies as provided in s.5 of the IGST Act, for the purposes of providing compensation to the States for loss of revenue arising on account of the implementation of GST, from the date the CGST Act was brought into force, for a period of five years or such period as may be prescribed on the Council's recommendations. The proviso: no cess shall be leviable on supplies made by a taxable person who has opted for composition levy under s.10 of the CGST Act. Section 8(2): the cess is levied on the supplies specified in column (2) of the Schedule, on the basis of value, quantity or such other basis, at a rate not exceeding the rate set forth in column (4) of the Schedule, as notified.

The three limits in section 8

One: only Schedule supplies. The cess is levied on the supplies specified in column (2) of the Schedule, at rates not exceeding those in column (4). So the Schedule sets the universe and the ceiling; the notification sets the actual rate within it.

Two: not on a composition supplier. The proviso to s.8(1) excludes supplies by a taxable person who has opted for composition levy under s.10 of the CGST Act. So a composition dealer neither charges nor pays cess on its outward supplies — which is consistent with the composition scheme's design, where a fixed percentage of turnover replaces the ordinary levy. Composition scheme →

Three: value determined under s.15 of the CGST Act. The first proviso to s.8(2): where cess is chargeable with reference to value, the value for each such supply is determined under s.15 of the CGST Act, for all intra-State and inter-State supplies.

So the cess base is the same base as the tax — with the same inclusions under s.15(2), the same discount treatment under s.15(3), and the same valuation rules where transaction value is displaced. Transaction value →

Imports: collected under the Customs Tariff Act

The second proviso to s.8(2): the cess on goods imported into India shall be levied and collected in accordance with s.3 of the Customs Tariff Act, 1975, at the point when duties of customs are levied on the goods under s.12 of the Customs Act, 1962, on a value determined under the Customs Tariff Act, 1975.

Three consequences.

Different collection point. Cess on imports is collected at importation, alongside the customs duties and IGST — not through the GST return.

Different valuation base. The value is determined under the Customs Tariff Act, not under s.15 of the CGST Act — so the assessable value for customs purposes, with the customs additions, is the base.

And the credit follows the bill of entry. Cess paid on import is credited to the importer's electronic credit ledger against the GSTIN on the bill of entry — the same point that applies to import IGST. Import rules →

Section 11: the machinery, and the ring-fence

Section 11(1): the provisions of the CGST Act and its rules — including those relating to assessment, input tax credit, non-levy, short-levy, interest, appeals, offences and penalties — apply mutatis mutandis to the levy and collection of cess on intra-State supplies.

Section 11(2): the IGST Act provisions apply the same way to inter-State supplies.

And the proviso to s.11(2) is the ring-fence: "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."

So cess credit can pay only cess. It cannot discharge CGST, SGST, UTGST or IGST — and there is no order-of-utilisation flexibility, because there is only one lane.

Which is what makes an accumulated cess balance so difficult to release. PMT-09 operates on the electronic cash ledger, not the credit ledger, so it cannot move cess credit anywhere. The only route out is a refund, and the only refund route is the zero-rated one under Circular No. 45/19/2018-GST — a zero-rated supplier under a LUT claiming refund of accumulated cess credit computed within the Rule 89(4) framework. Refund of compensation cess credit → PMT-09 →

Section 8A: the general-practice power

Section 8A, inserted by the Finance (No. 2) Act, 2024, notified through Notification No. 17/2024-CT dated 27.09.2024, w.e.f. 01.11.2024 — "Power not to recover cess not levied or short-levied as a result of general practice."

The structure: where the Government is satisfied that a practice was, or is, generally prevalent regarding the levy of cess — including non-levy — on any supply, and that such supplies were, or are, liable to cess, it may direct that the cess not levied or short-levied in accordance with that practice shall not be recovered.

It is the cess analogue of a general-practice relief provision, and its insertion in 2024 is significant timing: it arrived shortly before GST 2.0 folded the cess into the 40% demerit rate for the affected goods, at a point when historical cess positions across an industry were being examined.

What it does for a taxpayer: nothing directly, because it operates on a Government direction, not an application. But where an industry-wide practice existed and a demand is raised on the historical position, s.8A is the provision to point to in a representation — and the material needed is evidence that the practice was generally prevalent, not merely the taxpayer's own.

Key takeaways

• Section 8 levies the cess on the supplies specified in the Schedule, at rates not exceeding column (4).
• No cess is leviable on supplies by a composition taxpayer.
• The value follows s.15 of the CGST Act for domestic supplies; imports follow the Customs Tariff Act, 1975.
• Section 11 applies the CGST and IGST machinery to the cess mutatis mutandis.
• The proviso to s.11(2) ring-fences cess credit — usable only against cess.
• Section 8A, from 01.11.2024, allows the Government to direct non-recovery of cess not levied under a generally prevalent practice.

Read next

• Refund of Compensation Cess Credit
• Compensation Cess Wind-Down After GST 2.0
• UTGST: Which Union Territories, and When It Applies
• PMT-09: Transfer Between Heads and Its Limits

Disclaimer: Positions stated as on 5 September 2026, based on the GST (Compensation to States) Act, 2017, the CGST Act and the IGST Act as amended to 31 March 2026 (ICAI Bare Law, 12th edition). Cess rates operate by notification within the Schedule ceilings and must be checked for the period concerned.