LEVY OF CESS AND ITS PURPOSES

[Mr. M. GOVINDARAJAN]

Cess is a tax or levy. It is believed that the term is originated from Irish farmers, as those who have the most successful yield pay the most tax on their crop to the Government (cess for assess). In India it is a tax on tax, levied by the government for a specific purpose.  In this article the levy of some cess and their purposes.

Universal Service Obligation Fund

The National Telecom Policy 1999 provided that the resources for meeting the Universal Service Obligation (USO) were to be generated through a Universal Access Levy (UAL), at a prescribed percentage of the revenue earned by the telecom licensees to be decided in consultation with the Telecom Regulatory Authority of India (TRAI).  The vision of this fund is to enable rural Indians to achieve their fullest potential and participate productively in the development of the nation by virtue of being effectively connected through a reliable and ubiquitous telecommunications network, access to which is within their reach and within their means.  The National Telecom Policy 2012 provides that continued support will be provided from USO fund for telecom services, including converged communication services in commercially unviable rural and remote areas.

Research & Development Cess      

Government of India has enacted the Research and Development Cess Act, 1986 to provide for levy and collection of cess on all payments made for import of technology.  Under the Act, ‘R&D Cess’ is levied at the rate of 5% on all payments made by an industrial concern for import of technology into India under a foreign collaboration.  Technology has been defined under Section 2(h) of the Act to mean –

-   Any special or technical knowledge                                                         

-   Any special service required for any purpose

-   Designs, drawings and publications

-   Technical persons coming to India

Research and Development Cess is payable within six months from the date of invoice or in case of associated enterprises, the date of credit in the books of account.  Proceeds of R&D cess collected under the Act are first required to be credited to the Consolidated Fund of India and thereafter these are transferred to the Technology Development Board, in accordance with the appropriation made by the Parliament through Finance Act.

Non-payment of R&D Cess may attract penalty up to 10 times the amount of Cess payable.

Education Cess

The progress of country directly relates with progress of its citizens. Education is the base of progress of each person. To progress correctly, the person should get sufficient education. To make a person more educated, there must be sufficient schools and sufficient facilities in those schools. All the facilities need fund and to raise fund for it, government has started to levy education CESS in 2004. As per name, education cess is to collect fund for provision of education facilities in the country.  The education cess is levied on income tax, service tax, excise duty, wealth tax and corporate tax.   The rate of education cess is 2% on the tax/duty.    Generally education cess is utilized for increment and spread of education. Some are meal projects, girl registration for education, free books, fund for construction of schools, scholarships etc.  The Education Cess got subsumed with tax/duty with effect from 01.06.2015 on the introduction of Swachh Bharat Cess.

Secondary & Higher Education Cess

Section 126 of Finance Act, 2007 provides that there shall be levied and collected, in accordance with the provisions of this Chapter as surcharge for purposes of the Union, a cess to be called the Secondary and Higher Education Cess, to fulfill the commitment of the Government to provide and finance secondary and higher education.   The Central Government may, after due appropriation made by Parliament by law in this behalf, utilize, such sums of money of the Secondary and Higher Education Cess levied.  This cess is levied @ 1% on the value of tax/duty.  The Secondary and Higher Education Cess on excisable goods shall be in addition to any other duties of excise chargeable on such goods, under the Central Excise Act, 1944 or any other law for the time being in force and the Education Cess chargeable under section 93 of the Finance (No. 2) Act, 2004.   This cess also got subsumed with tax/duty with effect from 01.06.2015 on the introduction of Swachh Bharat Cess.

Clean Energy Cess

Clean Energy Cess is a kind of carbon tax and is levied in India as a duty of Excise under section 83 (3) of the Finance Act, 2010 at the rate of ₹ 100 per tonne on Coal, Lignite and Peat (goods specified in the Tenth Schedule to the Finance Act, 2010) in order to finance and promote clean environment initiatives, funding research in the area of clean environment or for any such related purposes.  This was introduced, with effect from 1 July 2010, though the Union Budget 2010-11, on coal produced in India or imported to India. This is in line with the principle of "polluter pays", which are the basic guiding criteria for pollution management.  The fund raised through the cess is being used for the National Clean Energy Fund for funding research and innovative projects in clean energy technologies or renewable energy sources to reduce dependence on fossil fuels. Thus, projects aiming at reduction of emissions with innovative technologies from different sectors get considered under this funding mechanism.

Central Road Fund

The Central Road Fund was first established by the Resolution of Parliament passed in 1988. The Central Road Fund Act, 2000 gave the statutory status to the fund.
In order to mobilize the fund, the Central Road Fund Act 2000 proposed to levy and collect by way of cess, a duty of excise and duty of customs on petrol and high speed diesel oil. ₹ 2 per litre is collected as cess on Petrol and High speed Diesel oil. The fund is utilized for the development and maintenance of National highways, State roads, Rural roads and for provision of road overbridges/under bridges and other safety features at unmanned Railway Crossings. The cess of ₹ 2 is being distributed as under –

• Cess of ₹ 0.5 per litre to be entirely allocated for development and maintenance of National Highways;
• Cess of ₹ 1.50 to be allocated in-

• 57.5 % of such sum for the development and maintenance of National highways;
• 12.5% for construction of road under or over bridges and for safety works at unmanned railway crossing;
• 30% on development and maintenance of State Roads. Of this amount, 10 % shall be reserved by the Central Govt. for implementation of State Road Schemes of Inter-State Connectivity and economic importance to be approved by central government;
• Some states and districts have established road funds other than Central Road Funds in order to cater to local road network maintenance and development.

Cess on feature films

The Cine-Workers' Welfare Fund Act, 1981 was enacted to finance various activities for promoting the Welfare of cine-workers as defined under the Act. The Act provides for levy of cess as duty of excise at the rate of ₹ 1,000/-per feature film and the revenue thus realized is credited to the Cine-workers' Welfare Fund. the cess collected from the producers of feature films is used for the welfare of cine workers on welfare activities like a Group Insurance Scheme for cine workers, health care facilities including financial assistance for treatment of heart diseases, kidney transplantation and treatment of cancer, and financial assistance for education of the children of cine workers from first standard to professional degree classes.

Cess on tea

Section 25 of the Tea  Act, 1953 provides that there shall be levied and collected as a cess for the purposes of this Act a duty of excise on all tea produced in India at such rate not exceeding fifty paisa per kilogram as the Central Govt. may, by notification in the Official Gazette fix. Provided that different rates may be fixed for different varieties or grades of tea having regard to the location of, and the climatic conditions prevailing in the tea estates or gardens producing such varieties or grades of tea any other circumstances applicable to such production. The proceeds from this fund would be utilized for the development of tea sector.

Report of C&AG audit

The C&AG audit report 50/2014 indicates about the levy of various type of cess by the Government, their accounting and utilization of the said fund for the allocated purposes.  The report indicated that the funds have not been fully utilized as required.  The following Table would show the total amount of cess collected for a particular period, the utilization of the fund and the percentage of fund that has not yet been utilized for the allocated purposes:

Name of Cess	Period	Total collected (in crores)	Utilized (in crores)	% - not transferred
Universal Service Obligation Fund	2002 - 2015	66117	26983	59.2%
Research & Development Cess	1996 - 2015	5784	1228	78.8%
Education Cess	2004 - 2015	154818	141520	8.6%
Secondary and Higher Education Cess	2006 - 2015	64228	NA	NA
Clean Energy Cess	2010 - 2015	15174	8916	41.2%
Central Road Fund	2010 - 2015	101142	99922	1.2%
Cess of feature films	2014 - 2015	3.83	1.75	54.8%
Cess on Tea	2014 – 20150	57.37	NIL	100%

 

Source: Report 50/2014 of C&AG Report

Now Swachh Bharat Cess has been introduced with effect from 15.11.2015.  The levy and utilization of the funds is well known to all.  We may hope that this cess along with other cess will be properly utilized for the purposes meant for.