With reference to Cess consider the following statements 1 Cess is earmarked for a particular purpos...........

Economic Affairs Tax System

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With reference to Cess, consider the

following statements:

1. Cess is earmarked for a particular

purpose only and cannot be used for any

other purpose.

2. Proceeds of cess are distributed on the

recommendation of Finance

Commission.

Which of the statements given above is/are

correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

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Explanation:

Statement 1 is correct: Cess is levied only for particular purpose and cannot be used for any other purpose.

Statement 2 is incorrect: Unlike regular tax such as personal income tax, excise duty, etc, a cess is different. All the taxes collected by the government usually go into the Consolidated Fund of India (CFI) which can be spent on any legitimate activity. But the collections from a cess are required to be kept outside of the CFI to be spent only on the specific purpose for which it was levied.If there is an unspent amount, it is simply carried forward for use in the following year. While the Centre has to mandatorily share the revenue from other taxes with the States, it gets to retain the entire share in case of a cess.Thus, it is not distributed with states so finance commission have no say on cess