Kerala, which suffered a massive destruction in the August 2018 flood, has started to mobilise additional revenue through the “flood cess” towards its reconstruction. The 1 per cent Kerala Flood Cess (KFC) on goods and services has come into effect from 1 August 2019 after six months of its announcement in the Finance Bill 2019--20.
The KFC is expected to generate additional revenue of Rs.600crore annually, which would be used only for the reconstruction and rebuilding the flood-ravaged State. Although various agencies have come up with differentassessments on the losses and damages incurred in the flood, the State Government put forth a requirement of about Rs.38,000 crore for the reconstruction. In spite of the requests made by the State, it received Rs. 3048 crore only as central grant, which is far less than the State’s requirement and expectation. Moreover, the Centre rejected clear ance to receive foreign assistance offered by some of the Middle East Countries. These reasons compelled the State to find other sources of revenue. The implementation of the Goods and Services Tax (GST) limited the State’s autonomy over the additional revenue mobilisation through tax. Hence, the State approached the GST Council,which is a constitutional body for making recommendations to the Government on issues related to GST, seeking permission to levy cess.Kerala became the first state to approach the Centre requesting for cess under Article 279,4(a)(f) of the Constitution that permits State Government to raise additional resources during any natural calamity or disaster. The 30 th GST Council meeting has decided to set up a seven-member Group of Ministers (GoM) to look into Kerala’s demand in detail. After deliberate discussions, the GoM, under the chairmanship of Sushil Kumar Modi, decided in favour of Kerala. Subsequently, the 32 nd Council meeting held on 10 January 2019 permitted the State Government to levy 1 per cent calamity cess applicable only on retail transactions within the State for two years. The cess should be levied on the goods and services coming within the GST brackets of 12, 18 and 28 per cent, and a 0.25 per cent cess on all goods coming under the fifth schedule of GST, including gold, silver and platinum ornaments, on the value of supply for a two-year period. However, the Government decided to exempt commodities like rice and vegetables drawing 5 per cent GST to avoid price hike of essential goods. Similarly, restaurant services drawing 5 per cent of GST were also exempted to prevent the price hike of hotel food. Moreover, the KFC is not applicable to the firms,which opted composition scheme. The share of goods and services coming under various tax slabs is given below:
Source: GST Monthly Review, January 2019.
The State was compelled to extend the date of implementation of KFC twice due to the amendment required in the Central Goods and Services Tax (CGST) Act.The cess should be included in the value of supply of goods or services or both as per Section 15 of Central and State Goods and Services Tax Act. It means there should be a cascading effect, which is against the spirit of GST. The State Goods and Services Tax (SGST) Act was amended through the Finance Bill of 2019--20, and the State approached the GST Council to make necessary amendments in the CGST Act to avoid the cascading effect of tax due to the implementation of cess. The 35 th GST Council held at New Delhi on 21 June 2019 has decided to amend the CGST Rule as requested by the state. A new section, 32A,was inserted to provide that the value of supply of goods or services or both on which KFC is levied only on the value of goods or services or both. Hence there is no cascading effect of tax due
to the implementation of cess. For instance, if someone buys a product with value of Rs.1000, the KFC calculation is as follows:
Sale value - Rs. 1000.00
CGST @ 9% - Rs. 90.00
SGST @ 9% - Rs. 90.00
KFC @ 1% - Rs. 10.00
Total - Rs. 1190.00
Under Rule 61 of the Kerala GST Rules2017, all taxable person liable to pay thecess should file a monthly return in form ‘KFC- A’ on or before the due date for filing
of GSTR-3B return
