A 'cess' is essentially a tax that the government collects with a specific objective in mind. The revenue generated from this tax must be utilized solely for the purpose for which it was collected, and not for any other purpose. This earmarked tax can only be implemented after the Parliament of India passes a legislation.
The legislation must clearly outline the purpose for which the funds are being raised. Although the Union Government is required to share taxes with the State Government, cess can be excluded from this divisible pool of taxes as per the provisions given in Article 270 of the Constitution of India.
The Union Government has various avenues for generating revenue - direct taxes, indirect taxes, fees, surcharges and cess. The revenue accumulated through indirect tax such as Goods and Services Tax (GST) and direct tax such as income tax can be utilized by the Government in any manner that serves the public interest.
However, the money procured through cess is earmarked for a specific purpose and cannot be spent elsewhere. For instance, the revenue generated from an environment cess must be allocated for environmental conservation and related activities.
