What is Environment Compensation Charge (ECC) suggested by the Supreme Court?

The Supreme Court has ordered an Environment Compensation Charge (ECC) of 1% for the registration of diesel cars above 2000 cc in Delhi. With the imposition of ECC, the ban imposed by the SC on large cars will go and they can get registered by paying the ECC. The order was made after an appeal made by automobile firm Mercedes Benz in the SC.

The SC is using the ECC for the second time. Previously in November last year, the Court imposed an ECC on light commercial vehicles entering Delhi as an entry tax of green nature. In December, the ECC was doubled by the SC and light commercial vehicles with two axles loaded with goods have to pay Rs. 1,400 and loaded commercial vehicles with three and four axles have to pay Rs. 2,600 to enter Delhi.

Interestingly the appeal and the verdict on large diesel car registration has given birth to a penalty called Environment Compensation Charge (ECC) to the family of existing green taxes.

But the SC directed charge (ECC) has an element of judicial activism as well. This is because any tax or surcharge or cess should have the authentication of the legislature. But the ECC doesn’t fulfill such a qualification. The SC has named it as a charge and not a tax or cess. Hence, the ECC may not qualify as a full-fledged green tax though its effects are the same.

Instead of asking the government to impose the ECC, the Court has imposed it directly shows the urgency of the issue.  The ultimate impact of the tax will go to the customers and the ECC is technically a type of tax/’loose cess’ though there are no legislative conditions that usually accompany imposition of tax on public activities.

As per the verdict, the 1% ECC at ex-showroom or retail price must be deposited in a designated state-run bank by the manufacturer or seller. Tax revenue will go to the Central Pollution Control Board and the Board has to open a separate account for the purpose.

In the last budget, the Finance Minister has imposed a green tax in the form of infrastructure cess of 1% on small petrol, LPG, CNG cars, 2.5% on diesel cars of certain capacity and 4% on other higher engine capacity vehicles and SUVs.

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