Abolition of Research & Development Cess under GST

research and development cess GST, R&D cess

Why Research and Development Cess was introduced

With the advent of increasing practice of import of technology and need for such technology in the domestic market for development and maintenance of the same Research and Development Cess was introduced. This encouraged the commercial applications of ingenuously developed technology and harmonize the import of technology to domestic market. Technological enhancement is a need for the progress for technology driven organizations as well as many associated small and medium sized organizations to combat competition prevailing in the global market.

research and development cess GST, R&D cess

Current Regime

Research and Development Cess was introduced in 1986 on all payments made for import of technology into India. The term import in relation to any technology, means bringing into India of, such technology from a place outside India. Here “technology” means any special or technical knowledge or any special service required for any purpose whatsoever by an industrial concern under any foreign collaboration, and includes designs, drawings, publications and technical personnel.

It was levied at the rate of 5 % on all the payments made by an industrial concern for import of Technology into India under a foreign collaboration. If any cess payable by an industrial concern is not paid on or before making payment towards the import of technology, it shall be deemed to be in arrears and same would be recovered along with penalty equal to a mount not exceeding ten times the amount in arrears.

Motive behind amendment

Import of technology undertaken by an Indian counterpart fall under the ambit of Service Tax due to Reverse Charge Mechanism and the counterparts need to discharge Service tax accordingly. Later, eliminate the effect of dual levy of taxes ie Service Tax on import of technology and Research and Development Cess Notification No.14/2012 – Service Tax was introduced

Notification No.14/2012 – Service Tax exempts the taxable service involving import of technology, from so much of the service tax leviable as is equivalent to the amount of R & D Cess payable on the said import of technology subject to the following conditions, namely:

  • amount of R & D Cess is paid within six months from the date of invoice or in case of associated enterprises, the date of credit in the books of account:
  • Provided that the exemption shall be available only if the R & D Cess is paid at the time or before the payment for the service
  • challan

The above exemption was a relief to the importers of technology still the issue of blockage of working capital could not be get rid of in totality.

Need for abolition of Research and Development (R & D) Cess

Importers are burdened with undue taxes and discouraged to import latest technology to carry out operations in India. Under this scenario where Government is inviting foreign companies to establish industries in India under MAKE IN INDIA, levy of Research and Development Cess acts as an obstacle.

Further, the repeal of Research and Development Cess would not have any major impact on the Central Government’s revenue because Service Tax at full rate would be collected on various payments that are currently subject to R & D Cess. On the other hand, the repeal will result into savings in Government’s cost of collection

Abolition of Research and Development Cess under GST

Under the proposed Model GST Law Research and Development Cess have been have been rolled out which would prove to be a relief to all the industrial concern which imports technology being designs, drawings, publications, know-how, royalty and technical personnel. The abolition of Research and Development Cess under GST would lower down the cost related to taxes and compliance.

Conclusion

The abolition of Research and Development Cess under GST would act as a boon to the big business like pharmaceuticals, automobile, IT sector majorly which would have a chain reaction on the prices of end products like medicines, cars, technology driven manufactured products

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