Article 270 and history of cess

Subject: Polity

Context:

The Comptroller and Auditor General (CAG) of India, in its latest audit report of government accounts, has observed that the Union government withheld in the Consolidated Fund of India (CFI) more than ₹1.1 lakh crore out of the almost ₹2.75 lakh crore collected through various cesses in 2018-19.

Concept:

• The Union government is empowered to raise revenue through a gamut of levies, including taxes (both direct and indirect), surcharges, fees and cess.
• While direct taxes, including income tax, and indirect taxes such as GST are taxes where the revenue received can be spent by the government for any public purpose in any manner it deems appropriate for the nation’s good, a cess is a earmarked tax that is collected for a specific purpose and ought to be spent only for that.
• Every cess is collected after Parliament has authorised its creation through an enabling legislation that specifies the purpose for which the funds are being raised.
• Article 270 of the Constitution allows cess to be excluded from the purview of the divisible pool of taxes that the Union government must share with the States.

History of cess

• 42 cesses have been levied at various points in time since 1944.
• Post Independence, the cess taxes were linked initially to the development of a particular industry, including a salt cess and a tea cess in 1953.
• Subsequently, the introduction of a cess was motivated by the aim of ensuring labour welfare. Some cesses that exemplified this thrust were the iron ore mines labour welfare cess in 1961, the limestone and dolomite mines labour welfare cess of 1972 and the cine workers welfare cess introduced in 1981.
• The introduction of the GST in 2017 led to most cesses being done away with and as of August 2018, there were only seven cesses that continued to be levied.
• These were Cess on Exports, Cess on Crude Oil, Health and Education Cess, Road and Infrastructure Cess, Building and Other Construction Workers Welfare Cess, National Calamity Contingent Duty on Tobacco and Tobacco Products and the GST Compensation Cess.
• And in February, Finance Minister introduced a new cess — a Health Cess of 5% on imported medical devices — in the Finance Bill for 2020-2021.