CESS - Definition / Legal Terminology - Income Tax

Introduction and Meaning of '' CESS '' One can have an idea as to what cess is, from the observations of Justice Hidayatullah, as the learned Chief Justice then was, in Guruswamy and Co. v. State of Mysore 1966 (9) TMI 143 - SC , Shinde Bros. v. Deputy Commissioner 1966 (9) TMI 139 - SC , India Cement Limited Versus State of Tamil Nadu - 1989 (10) TMI 53 - SC , the learned judge observed: The word 'cess' is used in Ireland and it still in use in India although the word rate has replaced it in England. It means a tax and is generally used when the levy is for some special administrative expense which the name (health cess, education cess, road cess, etc.) indicates. When levied as an increment to an existing tax, the name matters not for the validity of the cess must be judged of in the same way as the validity of the tax to which it is an increment. As per the reports which was submitted to the Fifteenth Finance Commission. Cesses are statutory levies whose proceeds are earmarked for utilisation for specific purposes. The underlying spirit for levying the cess is to serve a specific purpose and provide necessary financial impetus to a particular sector/area of the economy. Hence, the Union Government merely acts as a custodian of funds so collected in the Public Account till these are appropriated for the mandated purpose. Similarly, surcharges are meant to be levied only for short periods. Both cesses and surcharges are excluded from the divisible pool. Article 270 of the Constitution enables the Union Government to levy and retain any cess levied for a specific purpose. Article 271 empowers Parliament to levy a surcharge on any taxes which fall within the Union Government's taxing powers. A large number of cesses and surcharges, except those levied on petroleum, have been subsumed into GST. The major ones are additional duty of customs and excise on motor spirit and high speed diesel oil, surcharge on pan masala and tobacco products, cess on sugar, clean enviornment cess and infrastructure cess. In the Union Budget of 2018-19 the erstwhile road cess was rechristened as the road and infrastructure cess and a social welfare surcharge was introduced. The major reasons for higher receipts from cesses and surcharges in 2018-19 are: (a) increase in the health and education cess on income tax to 4 per cent from the earlier 3 per cent; (b) introduction of a road and infrastructure surcharge; and (c) imposition of social welfare surcharge of 10 per cent on the aggregate duties of customs and imported goods in place of the earlier education and higher education cess of 3 per cent on imported goods. The Union Budget of 2019-20 estimates a further increase in the ratio of cesses and surcharges to the gross tax revenue, as the rate of surcharge on income tax for individuals having income between Rs. 2 crore and Rs. 5 crore has been increased from 15% to 25%. For individuals earning more than Rs. 5 crore, the rate of surcharge has been increased from 15% to 37%. As per Central Goods And Services Tax Act, 2017. cess shall have the same meaning as assigned to it in the Goods and Services Tax (Compensation to States) Act; [ Section 2(22) ]