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Clean Energy Cess - Carbon Tax of India

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Clean Energy Cess is a kind of carbon tax and is levied in India as a duty of Excise under section 83 (3) of the Finance Act, 2010 on Coal, Lignite and Peat (goods specified in the Tenth Schedule to the Finance Act, 2010) in order to finance and promote clean environment initiatives, funding research in the area of clean environment or for any such related purposes.

This was introduced, with effect from 1 July 2010, though the Union Budget 2010-11, on coal produced in India or imported to India. This is in line with the principle of "polluter pays", which is the basic guiding criteria for pollution management. Vide Finance Act, 2016 the Clean Energy Cess was renamed as Clean Environment Cess.

In many countries carbon taxes are levied also on other fossil fuels like petroleum, natural gas etc. However, in India this is applied only on coal and its variants - lignite and peat. In any case, subsequent to the global financial crisis of 2008, many countries have either abolished or reduced or postponed their decisions on such carbon taxes.

The Tenth Schedule to the Finance Act, 2010 prescribes a statutory cess rate of Rs.100 per tonne for all three categories, namely, coal, lignite and peat. However, the effective rate of cess was Rs.50 per tonne, as has been prescribed through Notification dated 22.06.2010, and such goods (i.e to which the clean energy cess applies) are exempt from education cess and higher education cess which are otherwise applicable. In the Union Budget 2014-15, the rate of cess was increased to Rs. 100/tonne from Rs. 50/tonne, with effect from July 2014. When imposed, Clean Energy Cess was levied for the purposes of financing and promoting clean energy initiatives and funding research in the area of clean energy. In the Union Budget 2014-15, the scope was also expanded to include financing and promoting clean environment initiatives and funding research in the area of clean environment. In the Union Budget of 2015-16 cess was raised further to Rs. 200/ metric tonne and further to Rs. 400/metric tonne in the Union Budget 2016-17.

Clean Energy Cess Rules, 2010 was notified on 22.06.2010 to prescribe a procedure for the levy and collection of the cess.

The cess would apply to the gross quantity of raw coal, lignite or peat raised and dispatched from a coal mine. No deduction from this quantity is be allowed for loss, if any, on account of washing of coal or its conversion into any other product/form prior to its dispatch from the mine. At the same time, cess would not be chargeable on washed coal or any other form provided the appropriate cess has been paid at the raw stage. Thus, if appropriate cess has not been paid at the raw stage, then the products would attract clean energy cess.

Since Clean Energy Cess is being levied as a duty of excise, it would also apply to imported coal, including washed coal by virtue of Section 3(1) of the Customs Tariff Act in the form of additional duty of customs. Since imported coal would not satisfy the condition regarding payment of appropriate cess at the raw stage, Clean Energy Cess would apply to all forms of imported coal.

In the State of Meghalaya, coal is mined under traditional and customary rights vested on the local tribes. The mines operated by these tribes are not subjected to the provisions of laws that regulate the operation of coal mines. Hence, full exemption from Clean Energy Cess is being provided to coal produced in the State of Meghalaya under such rights.

Usage of the fund raised through Clean energy cess

The fund raised through the cess is being used for the National Clean Energy Fund for funding research and innovative projects in clean energy technologies or renewable energy sources to reduce dependence on fossil fuels. Thus, projects aiming at reduction of emissions with innovative technologies from different sectors get considered under this funding mechanism.

The details of cess collected for each year is available in the Receipt Budget Document issued alongside Union Budget under the Budget head 5.07.04 (under excise duty).

The amount of Clean Energy Cess collection/accrued in the last few years are given in the table below:-

Financial Year Amount of Clean Energy Cess levied/billed on sales
2011-12 Rs. 2579.55 crore
2012-13 Rs. 3053.19 crore
2013-14 Rs. 3527.75 crore
2014-15 Rs. 6857.50 crore (Provisional)*
* Source: reply to a parliament question in Lok Sabha (Qn. No. 4314) on 18 December 2014

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