THIRUVANANTHAPURAM: Even as the Opposition has unleashed massive protests against the proposed Rs 2 per litre cess on the sale of petrol and diesel, tax experts say the budget announcement goes against taxation law. It appears to be a technical oversight, but cess can only be imposed on the tax component of goods and services, not on their value or quantity unless enabled by a specific Act, experts say.
An additional sales tax (AST), and not cess, can be levied on fuel sales, they say. Finance Minister K N Balagopal had explained that the new cess would be on the model of the existing ‘KIIFB cess’. But the extra Rs 1 per litre of fuel collected by the state GST department for KIIFB is an AST, not cess.
As per the law, cess is the tax collected for a specific purpose. It should be parked in a separate head of account and spent only for that purpose. In the case of AST, the government is not legally bound to spend the collected amount for a specific purpose.
The government has the option to correct the mistake by replacing the word ‘cess’ with ‘AST’ in the finance bill. A similar error occurred in the budget announcement on the KIIFB cess too. It was later corrected as AST in the finance bill.
Usage minor technical issue: Finance dept
The finance department said the usage was a minor technical issue. “The budget is intended to give a broad idea of the new taxation. Specifics need to be mentioned in the finance bill only,” said a top source. A leading Kochi-based tax consultant said his community is “confused” about the new cess proposal. “We reckon that the finance minister used the word ‘cess’ in a colloquial sense,” he said. “If anyone challenges this new cess proposal in the court, the government is answerable,” he said.
The legality of the budget announcement on filing appeals under the KVAT and Luxuries Tax Acts is also questionable, said another tax expert. “The state does not have the constitutional mandate to make such announcements after the 101st Constitutional Amendment Act on GST... Appellate authorities have a discretionary power but the interference of the executive is banned,” he said.