Introduction:-
With the forthcoming budget 2016-17 there were lot of hopes and expectations of the automobile industry that they will be encouraged by way of various tax incentives but the budget came as a curse to them. All the hopes went in vain as soon as the Finance minister announced levy of Infrastructure cess on the vehicles. The levy of infrastructure cess came as a big blow to the car manufacturers.
Levy of Infrastructure Cess:-
Vide Budget 2016-17, the government has announced to levy infrastructure Cess at the rate of 1 to 4 per cent on manufacturing of cars.
Infrastructure Cess is being levied on motor vehicles, of heading 8703, as per details mentioned hereunder:
Rate of Infrastructure Cess –
Eleventh Schedule of Finance Bill 2016 read with Notification No. 01/2016-Infrastructure Cess dated 01.03.2016
The government has provided full exemption from the levy of Infrastructure Cess without any conditions on the following motor vehicles:-
| SERIAL NO. | CHAPTER HEADING | DESCRIPTION OF EXCISABLE GOODS |
| 1. | 8703 | Motor vehicles cleared as ambulances duly fitted with all the fitments, furniture and accessories necessary for an ambulance from the factory manufacturing such motor vehicles |
| 4. | 8703 | Electrically operated vehicles, including three wheeled electric motor vehicles |
| 5. | 8703 | Hybrid Motor Vehicles |
| 6. | 8703 | Three wheeled vehicles |
| 8. | 8703 | Hydrogen vehicles based on fuel cell technology |
Furthermore, the government has provided exemption to the following motor vehicles subject to satisfaction of conditions prescribed therein:-
| SERIAL NO. | CHAPTER HEADING | DESCRIPTION OF EXCISABLE GOODS | CONDITION NO. |
| 2. | 8703 | Motor vehicles (other than three wheeled motor vehicles for transport of upto seven persons), which after clearance has been registered for use solely as ambulance | 1 |
| 3. | 8703 | Motor vehicles (other than three wheeled motor vehicles), which after clearance has been registered for use solely as taxi | 1 |
| 7. | 8703 | Cars for physically handicapped persons | 2 |
It is also worth noting that the condition no. 1 provides the exemption by way of refund mechanism as motor vehicles after clearance has been registered as ambulance or taxi. A certificate issued by concerned State Transport Authority that the motor vehicle has been registered for use as ambulance/taxi is also required to be submitted to Assistant/Deputy Commissioner of Central Excise within 3 months or extended period of 3 months from the date of clearance of motor vehicle.
Furthermore, condition no. 2 requires certification from Deputy Secretary of Department of Heavy Industries that goods are capable of being used by physically handicapped persons and affidavit by buyer of car that the car will not be sold for five years after its purchase.
Moreover, the rate of infrastructure cess for following motor vehicles has been prescribed as follows:-
| SERIAL NO. | HEADING | DESCRIPTION OF EXCISABLE GOODS | RATE |
| 9. | 8703 | Motor vehicles of length not exceeding 4000 mm, namely petrol, liquefied petroleum gases (LPG) or compressed natural gas (CNG) driven vehicles of engine capacity not exceeding 1200 cc | 1% |
| 10. | 8703 | Motor vehicles of length not exceeding 4000 mm, namely diesel driven vehicles of engine capacity not 2.5% – exceeding 1500 cc | 2.5% |
It is worth noting that the effective rates of the Infrastructure Cess have been made applicable with effect from 1st March, 2016.
Amendment in Rule 3 of Cenvat Credit Rules, 2004 renders Infrastructure Cess as ‘Non-Cenvatable’
No Cenvat credit of this Infrastructure Cess will be available under the Cenvat Credit Rules, 2004. The Notification No. 13/2016-CE (N.T.) dated 01.03.2016, has amended Cenvat Credit Rules, 2004 made applicable from 01.04.2016 wherein proviso has been inserted in Rule 3 (4) thereby stating that the cenvat credit shall not be utilised for payment of Infrastructure Cess leviable under sub-clause (1) of clause 159 of the Finance Bill, 2016. Hence, when the payment of Infrastructure Cess is to be made in cash only and no cenvat credit can be utilised for its payment, it is implied that the Infrastructure Cess is non-cenvatable. This is for the reason that restricting utilisation tantamounts to restricting availment of credit as there is no point in taking credit when the same cannot be utilised at all.
Good bye words:-
The intention of levying Infrastructure Cess is clear from the Budget speech wherein it was clarified that the pollution and traffic situation in Indian Cities is a matter of concern and so this new levy is being introduced on motor vehicles. However, this infrastructure cess will definitely result in hike in the prices of cars. Moreover, even the Supreme Court has already imposed a ban on registration of diesel vehicles with engine capacity of over 2000 cc in Delhi, observing the alarming rise in pollution levels. Now the government has decided to impose infrastructure cess upto 4 per cent.
