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Legal Implications Of the Newly Proposed Agriculture Infra Development Cess The objective behind introduction of the cess is to raise funds to finance spending on developing agriculture infrastructure

By Smita Singh

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In the Union Budget 2021, the finance minister proposed a new levy: Agriculture Infrastructure Development Cess on import of 29 products w.e.f. February 2, 2021 at the rate not exceeding the rate of customs duty as specified, for the purposes of financing the agriculture infrastructure and other development expenditure. Cess is a special form of tax levied by the government over and above basic tax rates with specific purposes till the time the government gets enough money for that purpose. Thus, cess is an additional tax besides the existing tax and is different from typical taxes and duties such as excise duty, income tax, etc.

The objective behind introduction of Agriculture Infrastructure Development Cess is to raise funds to finance spending on developing agriculture infrastructure. Considering that not much private investment is forthcoming for agriculture, the Centre now seeks to raise a dedicated fund to meet these expenses. However, while applying the cess though, consumers have been ensured that there will not be any additional burden on most items.

This new cess is levied on 29 products, such as are gold, silver, imported apple, imported alcohol (excluding beer), imported pulses, imported palm oil, imported urea, and petrol/diesel including branded ones to name a few. The cess on import of 'gold and silver' will be INR 2.5 per cent, alcoholic beverages (100 per cent), crude palm oil (17.5 per cent), 'coal, lignite and peat' (1.5 per cent). Further blended fuel, which includes M-15 petrol and E-20 petrol, will be exempted from cesses and surcharges on the lines of other blended fuels like E-5 and E-10 if these blended fuels are made of duty paid inputs.

While basic custom duty (BCD) has been lowered on 25 of these products, basic excise duty (BED) and special additional excise duty (SAED) have been lowered on unbranded and branded petrol-diesel. The new cess will only offset the reduction in customs or excise duty and thus will not raise the tax incidence for consumers. It is also important to note that the cess is not uniform and will vary from product to product.

Further the specified goods imported under exemptions available under free trade agreements and export oriented units as well as under advance authorization schemes under the foreign trade policy have been exempt from Agriculture Infrastructure Development Cess. However, the Central Board of Indirect Taxes and Customs vide circular dated February 22, 2021 has clarified that in case of EOU selling finished goods to domestic tariff Area Agriculture Infrastructure Development Cess exemption gets denied on such inputs and same is also required to be paid by EOU as in the case of basic customs duty in such cases.

The importance of levy of the new Agriculture Infrastructure Development Cess comes from its usage and implications. The Agriculture Infrastructure Development Cess will be used for a specified purpose i.e. to improve agricultural infrastructure in India firstly by enhancing production, secondly by protecting this sector from undue competition and thirdly by enhancing its output competently.

With an immediate need to develop agricultural infrastructure, the introduction of Agriculture Infrastructure Development Cess also came at a point where the Centre has sent a message to the farmers regarding its intention to improve their condition.

However, not everybody is happy with this new levy. It is important to note that the collection from the Agriculture Infrastructure Development Cess will not form part of the divisible central and ultimately is out from their reach. Since the impact of this new levy will be offset by an equivalent or more reduction in other central levies, for States such setting off means that they will lose out on their share in central revenues, for example the Agriculture Infrastructure Development Cess of INR 2.5 per litre has been imposed on petrol, the basic excise duty and special additional excise duty on same is reduced to the same effect. Consequently, while states would have earned 41 per cent of the INR 2.50 per litre of petrol sold (INR 1.02 per litre) in case of duties levied, now it is the Centre who has the same amount INR 2.50 per litre for its sole discretion. Similarly, adjustment has been made for alcohol that currently attracts 150 per cent basic customs duty, which has been reduced to 50 per cent in order to nullify the impact of 100 per cent levy of the Agriculture Infrastructure Development Cess.

Thus, effectively, for consumers there will be no impact on selling price of the products on which Agriculture Infrastructure Cess is levied. Ultimately with reduction in one levy, another one is levied for the same amount, netting off the impact, with no gain no loss scenario. The tax component in the final price will remain the same for most of the products.

Thus, rather than consumers, it is states who are fretting over the new levy of Agriculture and Infrastructure Cess as they may get less money in line with the devolution formula. However, the Centre has assured that the amounts lost to states will not be sizeable and, in fact, states will be benefited through this cess as the spending will be earmarked for the states.

Smita Singh

Partner-Indirect Tax, Customs & Trade Group, Singh & Associates

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