Meaning of 'CESS' - Definition / Legal Terminology - Income Tax

Introduction and Meaning of CESS As per Black s Law Dictionary , Tenth Edition as- An assessment or tax. P. Ramanatha Aiyar , Advanced Law Lexicon, 3rd Edition defines cess as:- Cess is An assessment tax; levy; specifically: (a) A rate or local tax . (b) In Scotland, the land tax. (c) in India, a tax for a special object; as, a road cess . (Webster) The word cess is used in Ireland and is 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 is an increment. Guruswamy and Co. v. State of Mysore, 1966 (9) TMI 143 - SUPREME COURT , per dissenting judge and India Cement Ltd. v. State of T.N., 1989 (10) TMI 53 - SUPREME COURT . The word cess 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. Shinde Brothers v. Hy. Commissioner, Raichur, AIR 1967 SC 1512, 1525. In Shinde Brothers Etc. Vs. Deputy Commissioner, Raichur Others Etc., 1966 (9) TMI 139 - SUPREME COURT , Justice M. Hidyatullah, as he then was in his dissenting opinion has defined the cess ( no contrary opinion was expressed by majority in that regard ) in paragraph 39, which is to the following effect:- 39. Now the health cess is first assailed on the ground that there is no entry health cess as such in the legislative entries. The word cess is used in Ireland and is 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. By Schedule A(1) read with Section 3 of the Act, it is collected as an additional levy with a tax, which, as described in Schedule A, is undoubtedly one within the powers of the State Legislature and has been so even prior to the Constitution In the Constitution Bench judgment of this Court in India Cement Ltd. Others Vs. State of Tamil Nadu Others, the above definition given by Hidayatuallah, J. was quoted with approval in Para 19, which is quoted as below:-= 19. Here, we are concerned with cess on royalty. One can have an idea as to what cess is, from the observations of Hidayatullah, J., as the learned Chief Justice then was, in Guruswamy Co. v. State of Mysore where at page 571, the learned Judge observed : The word cess is used in Ireland and is 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. The meaning of cess as noticed above was again reiterated by a Two Judge Bench judgment of this Court in Vijayalashmi Rice Mill Others Vs. Commercial Tax Officers, Palakol Others, 2006 (8) TMI 307 - SUPREME COURT , in paragraph 13, following has been laid down:- 13. Hence ordinarily a cess is also a tax, but is a special kind of tax. Generally tax raises revenue which can be used generally for any purpose by the State. For instance, the income tax or excise tax or sales tax are taxes which generate revenue which can be utilised by the Union or the State Governments for any purpose e.g. for payment of salary to the members of the armed forces or civil servants, police, etc. or for development programmes, etc. However, cess is a tax which generates revenue which is utilised for a specific purpose. For instance, health cess raises revenue which is utilised for health purposes e.g. building hospitals, giving medicines to the poor, etc. Similarly, education cess raises revenue which is used for building schools or other educational purposes. 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) ]