RESEARCH AND DEVELOPMENT CESS

The Research and Development Cess Act, 1986 (‘Act’ for short) is an act to provide for the levy and collection of a cess on all payments made for the import of technology for the purpose of encouraging the commercial application of indigenously developed technology and for adapting imported technology to wider domestic application and for matters connected therewith or incidental thereto.  It extends to all over India except Jammu & Kashmir. This act came into effect from 05.10.1987.

Section 3 of the Act provides that there shall be levied and collected, for the purposes of this Act, a cess at such rate not exceeding 5% on all payments made towards the import of technology, as the Central Government may, from time to time, specify, by notification, in the Official Gazette.  The cess shall payable to the Central Government by an industrial concern which imports technology on or before making any payments towards such import and shall be paid by the industrial concern to any specified agency.

The term ‘technology’ is defined under Section 2(h) of the Act which 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.  The terms ‘industrial concern’ is defined under Section 2(e) of the Act which has the meaning  assigned to it in clause (c) of section 2 of the Industrial Development Bank of India Act, 1964 (18 of 1964), and includes any other person in whose favor a foreign collaboration involving the import of technology is approved by the Central Government.

Section 4 of the Act provides that the proceeds of the cess levied and collected under section 3 shall first be credited to the Consolidated fund of India and the Central Government may, if Parliament by appropriation made by law in this behalf so provides, pay to the Development Bank, from time to time, from out of such proceeds (after deducting the cost of collection), such sums of money as it may think fit for being utilized for the purposes of the Fund.

Section 5 of the Act provides for the formation of Venture Capital Fund.   The said section provides that Venture Capital Fund shall form part of the Development Assistance Fund established by the Development Bank under section 14 of the Industrial Development Bank of India Act, 1964, and the provisions of Chapter V of that Act shall, save as otherwise expressly provided in this Act, apply to such Fund. There shall be credited to the Fund-

• All amounts paid under section 4;
• Any amount given as grants by the Central Government for the purposes of this Act;
• Any amount given to the Fund from any other source; and
• Any income from investment of the amount in the Fund.

Section 6 of the Act provides that the Fund shall be applied by the Development Bank to meet the expenditure incurred in connection with the measures and facilities which, in the opinion of the Development Bank, are necessary or expedient to provided equity capital or any other from of financial assistance to industrial concerns attempting commercial applications of indigenous technology or adapting imported technology to wider domestic applications.

Section 7 gives power to Central Government to exempt from the provisions of this Act. This section provides that notwithstanding anything contained in this Act, if the Central Government is satisfied that it is necessary or expedient so to do in the public interest, it may, by notification in the Official Gazette and subject to such conditions, if any, as may be specified therein, exempt any industrial concern from the payment of the cess payable under this Act for the import of such technology as may be specified in such notification.

Section 8 gives powers to the Development bank to call for information. The said section provides that the Development Bank may require an industrial concern to furnish, for the purposes of this Act, such statistical and other information in such form and within such period as may be prescribed.

Section 9 provides penalty for non payment of cess as detailed below:

• If any cess payable by an industrial concern is not paid on or before making payments towards the import of technology, it shall be deemed to be in arrears and the same shall be recovered by the Development Bank in such manner as may be prescribed;
• The Development Bank may, after such inquiry as it deems fit, impose on the industrial concern, which is in arrears under sub-section (1), a penalty not exceeding ten times the amount in arrears:

 Before imposing such penalty, such industrial concern shall be given a reasonable opportunity of being heard, and if, after such hearing, the Development Bank is satisfied that the default was for any good and sufficient reason, no penalty shall be imposed under this sub-section.

The Technology Development Board (TDB), coming under the Department of Science and Technology receives money collected out of the cess.  The TDB’s aim is to provide financial assistance to industrial concerns and other agencies attempting development and commercial application of indigenous technology or adapting imported technology for wide domestic applications. The Government has made available a sum amounting to about 37% of the R&D Cess collection made over 12 years as detailed below:

In ‘crores’                                                              

Source: Business Line, 05.08.2014

The industry expects that the money collected in the name of R&D Cess should be used for innovation in its entirety.