An Alumnus of IIM and DU with almost a decade of experience in the banking and finance sectors. I had the opportunity to work with all types of institutions in BFSI ecosystem like Bank, NBFC, Fintech, Consulting and Auditor. I started my professional journey at KPMG and subsequently worked in leading names of the BFSI sector including Ujjivan Bank, Vistaar Finance. Currently building a fintech startup ( PICE) by handling alliances, compliance and creation of GTM strategy for payments and credit product.
GST on Sugar—Sugar attracts 5% or 18% GST, with no cess.
GST vs Cess—Cess is an extra levy to compensate states for GST losses.
Cess Calculation—Applied on supply value for specific goods like tobacco, coal, etc.
Import Cess—levied with IGST and customs duty, but not on sugar.
Cess Distribution—The central government distributes it to states every two months.
GST in India applies to the supply of goods and services interstate or intrastate. The GST rates vary based on the type of goods and services and supply across state borders or within the state. In addition, the government levies a compensation cess on certain supplies of goods or services at variable rates based on constitutional validity.
While GST applies to sugar, sugar products, and the sugar industry, the cess on sugar in GST does not apply. Learn in detail about cess and GST here to understand the calculation of cess.
Overview of GST and Cess
In India, the applicable bands of GST rates (tax rate on supply of services and goods) are 0%, 5%, 12%, 18% and 28% based on the type of goods or services supplied. Further, the GST varies based on the region of supply such as inter-state supply or intrastate supply.
In case it is an interstate supply, IGST (Integrated Goods and Services Tax) applies. However, if it is an intra-state supply, CGST (Central Goods and Services Tax) and SGST/UTGST (State/Union Territory Goods and Services Tax) apply in equal proportion.
The government levies additional compensation cess on GST for goods like pan masala, tobacco or tobacco substitutes, coal, aerated water, motor cars, and other supplies. This helps the government collect revenue to compensate for the state government's revenue loss during the GST transition.
Definition of GST
The Indian government introduced GST (Goods and Services Tax) in 2017 to eliminate the cascading effects of existing indirect taxes such as service tax, value-added tax (VAT), duty of excise and others. It aimed to replace indirect taxes and streamline the Indian taxation system to eliminate double taxation.
Cess stands for Central Excise and Service Tax. The government replaced cess with compensation cess after the introduction of GST in 2017. Compensation cess is levied by the government to compensate for the revenue loss for the state which they suffered during the introduction of GST. Cess rates are additional rates for compulsory payments, that the government levies over and above GST.
How to Calculate Cess on GST?
The cess rate varies based on the category of goods or services. Taxpayers need to calculate cess on the value of the supply of services or goods at the applicable cess rate. In addition, if GST cess applies on imported goods, respective parties need to collect cess along with IGST and customs duty.
Here is an example to illustrate GST cess:
Value of imported goods = ₹100
GST Rate = 18%
Customs Duty= 10%
Value for the purpose of levying IGST = ₹110 (10% of ₹100)
Applicable GST = 18% of ₹110 = ₹19.80
Total Taxes = IGST + Customs Duty = ₹29.80
In case the goods attract cess, then cess will be levied on ₹110 as compensation cess is not levied on IGST.
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GST Rate for SugarÂ
Here is the current GST rate for various sugar products:
Product
Applicable GST Rate
Beet Sugar, Cane Sugar, Palmyra, Sugar and Khansari Sugar
5%
Refined Sugar with added flavour or colouring matter, Sugar Cubes
18%
Sugar Confectionary (Excluding chocolate, bubble gum or chewing gum)
18%
Lactose, Maple, Glucose, Fructose, Sugar, Honey
18%
Chewing Gum, Bubble Gum, White Chocolate not containing cocoa
28%
Notably, cess does not apply to sugar and sugar products. However, the GST rates are applicable as per the above-mentioned rates.
Cess is an additional amount over and above GST that the government collects to compensate states for revenue loss during the GST transition. The cess rate is calculated based on the value of the supply of goods or services or both.
As a result, taxpayers need to pay cess in addition to GST wherever applicable. GST cess applies to imported goods under Section 3 of the Customs Tariff Act, 1975. After GST implementation, the government replaced the cess with a compensation cess in 2017.
Notably, taxpayers involved in the export of specified goods or who have opted for the GST composition scheme need to collect and remit GST compensation cess to the Indian Government. Further, the Central Government is liable to distribute the collection from cess to the states to compensate for their drop in revenue during GST transit.
Further, the Central Government needs to distribute the proceeds from the levy of cess to the states after every 2 months. In case there is any unused special fund at the end of the transition period, the Central Government is liable to release it to the states based on the cess distribution method wherein the value of supply of goods and services is prioritised.
Conclusion
The government and GST Council do not levy cess on sugar GST making sugar cess zero. In addition, there is no cess applicable to the supply of sugar products. However, in products where GST cess applies, the calculation of cess is based on the value of the supply of goods and services.
Compensation cess applies at the applicable rate over and above GST. As a result, taxpayers need to pay cess along with GST if applicable.
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FAQs
Is there any cess on sugar under GST?
No, there is no cess on sugar or sugar products under GST. Sugar attracts GST at 5% or 18%, but no additional compensation cess is levied on its supply.
What is the purpose of GST cess?
GST cess is an additional tax over GST, applied to certain goods like tobacco, coal, and aerated water. It helps the government compensate states for revenue losses incurred during the transition to GST.
How is cess calculated on goods under GST?
Cess is calculated on the value of the supply of goods or services at the applicable cess rate. If applicable, it is charged over and above GST, but it does not apply to IGST when levied.
Does cess apply to imported goods?
Yes, compensation cess applies to specific imported goods along with IGST and customs duty. However, sugar imports are exempt from cess, making its cess liability zero.
How is GST cess revenue distributed to states?
The central government collects and distributes cess revenue to states every two months. This ensures states receive compensation for revenue losses due to GST implementation.
An Alumnus of IIM and DU with almost a decade of experience in the banking and finance sectors. I had the opportunity to work with all types of institutions in BFSI ecosystem like Bank, NBFC, Fintech, Consulting and Auditor. I started my professional journey at KPMG and subsequently worked in leading names of the BFSI sector including Ujjivan Bank, Vistaar Finance. Currently building a fintech startup ( PICE) by handling alliances, compliance and creation of GTM strategy for payments and credit product.
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