The Hindu Business Line : Tax expert for scrapping of 5% R&D cess

Direct tax experts are of the view that given the new era of knowledge process outsourcing (KPO), and free movement of technology and design and drawings for betterment of Indian manufacturing, the long standing (since 1986) R&D Cess of five per cent, as applicable to an industrial concern, should be scrapped without any further delay.

According to Mr Narayan Jain, Vice-Chairman of All-India Federation of Tax Practitioners (AIFTP), and former President of DTPA, as per Section 3(2) of the Research and Development Cess Act, 1986, the cess, to be paid to the Central Government on or before payment towards import of technology by an industrial concern, has now outlived its utility.

‘Industrial concern’

Incidentally, even construction companies which now fall within the meaning of an industrial concern are required to pay the R&D cess for import of design and drawings, like say in the construction of a mega mall.

Mr Jain said any company engaged in construction was now covered within the meaning of an “industrial concern”, following the changes to the provisions of the Industrial Development Bank of India Act in March 2000.

In a bid to increase the flow of institutional credit to the construction sector, the same was declared as an ‘industrial concern’ under the IDBI Act in March 2000.

Penalty provision harsh

He said what was particularly harsh was the penalty provision. In case of failure in making such payment to the Technology Development Board, penalty may be imposed under Section 9 of the R&D Cess Act, of an amount not exceeding 10 times the cess amount in arrear.

There is also a provision for refund of the cess, owing to wrong calculation or revision of payable amounts, and application in specified format will have to be made to the Secretary of the Board.

The Central Government, according to the tax expert, however, had the power to exempt any industrial concern from payment of the cess towards import of technology.

Asked what categories of payments will attract the R&D cess, he said as per Section 3 of the Research and Development Cess Rules, 1996, this will include any payment made towards import of technology as approved by the Central Government in terms of any foreign collaboration or in accordance with the Industrial Policy of Government of India.

He clarified that the cess was payable only in respect of payment made towards import of technology, cost of drawings and design, payment made to foreign collaborator or any other person in connection with deputation of technical personnel to India. The cess, however, is not applicable to cost of materials proposed to be imported by the concern.

The proceeds of the cess levied and collected, at a rate not exceeding five per cent, is first credited to the Consolidated Fund of India, and then disbursed to the Technology Development Board from time to time on as per the prescribed procedure.

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