Infrastructure Cess on Vehicles levied by Budget 2016

Dr. Sanjiv Agarwal, FCA, FCS

In the Budget speech for 2016-17, Finance Minister expressed his and the Government’s concern on the rising pollution and traffic situation in Indian cities. Para 153 of the speech reads as follows –

“The pollution and traffic situation in Indian cities is a matter of concern. I propose to levy an infrastructure cess, of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles and SUVs”.

Statutory Provisions

The statutory provisions governing the levy of infrastructure cess are contained in Chapter VII (Clause 159) of the Finance Bill, 2016 as extracted below:

” (1) In the case of goods specified in the Eleventh Schedule, being goods manufactured or produced, there shall be levied and collected for the purposes of the Union, a duty of excise, to be called the Infrastructure Cess, at the rates specified in the said Schedule for the purposes of financing infrastructure projects.

(2) The cess leviable under sub-section (1), chargeable on the goods specified in the Eleventh Schedule shall be in addition to any other duties of excise chargeable on such goods under the Central Excise Act, 1944 or any other law for the time being in force.

(3) The provisions of the Central Excise Act, 1944 and the rules made thereunder, including those relating to assessment, non-levy, short-levy, refunds, interest, appeals, offences and penalties, shall, as far as may be, apply in relation to the levy and collection of the cess leviable under sub-section (1) in respect of the goods specified in the Eleventh Schedule as they apply in relation to the levy and collection of the duties of excise on such goods under the said Act or the rules, as the case may be.

Clause 159 of the Bill seeks to insert new Chapter VII so as to levy infrastructure cess at the rate of 4 percent as duty of excise on the goods specified in the Eleventh Schedule. Eleventh Schedule to the Finance Bill, 2016 refers to all goods falling under heading 8703 of the First Schedule to the Central Excise Tariff Act, 1985 @ 4 percent.

Levy of Infrastructure Cess

In view of the concern over pollution and traffic situation in Indian cities, a cess called infrastructure cess of 1 percent has been levied w.e.f. 01.03.2016 on small petrol, LPG, CNG vehicles laws, 2.5 percent on diesel cars of specified capacity and 4 percent on other higher engine capacity vehicles and SUVs.

Infrastructure Cess
W.e.f. 1st March, 2016
Authority Clause 159 ; Chapter VII of 2016 of Finance Bill, 2016
On Specified vehicles
As Excise duty
Rate of cess 1 to 4 percent
Cenvat Credit Not allowed
To be paid in Cash
Budget Target Rs. 3000 crore
Notification Notification No. 1/2016-IC dated 01.03.2016
Infrastructure cess has been levied on motor vehicles under heading 8703 of Central Excise Tariff Act of specifications as under –

a) Petrol/LPG/CNG driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1200 CC @ 1percent

b) Diesel driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1500 CC @ 2.5 percent

c) Other higher engine capacity and SUVs and bigger sedans @ 4.0 percent

However, three wheeled vehicles, electrically operated vehicles, hybrid vehicles, hydrogen vehicles based on fuel cell technology, motor vehicles which after clearance have been registered for use solely as taxi, cars for physically handicapped persons and Motor vehicles cleared as ambulances or registered for use solely as ambulance will be exempt from this Cess. No credit of this cess will be allowed and credit of no other duty can be allowed to pay this Cess. Thus this cess has to be paid in cash.