In order to provide for compensation to the States for the loss of revenue arising on account of implementation of the goods and services tax, Compensation Cess is being levied on certain goods and services vide The Goods and Services Tax (Compensation to States) Act, 2017. All the provisions of the said Act have come into force w.e.f. 1st day of July, 2017. The Notification No.1/2017-Compensation Cess (Rate) dated 28th June, 2017 specifies that the Aerated waters falling under tariff head 22021010 and lemonade falling under tariff head 22021020 will be subject to compensation cess of 12%. Now, the question arises is whether the compensation cess of 12% is to be charged by the restaurants serving aerated waters and lemonade?
It is pertinent to note that that the Notification no. 01/2017-Compensation Cess (Rate) specifically states that said cess shall be leviable only on supply of such goods thereby meaning that when such goods are sold from a retail outlet or shops. However, when these are served by restaurants, eateries, clubs etc. the same shall not be subject to any cess and GST rate as leviable on “Supply of food/drinks in restaurant/outdoor catering/clubs etc” depending on fulfilment of condition of facility of air conditioning, may be applicable. This leads to non-levy of compensation cess on such goods when supplied as a part of service. Well, it may sound absurd that the same goods when sold at retail outlets will attract compensation cess while no compensation cess is leviable on such goods supplied as a part of service.