CA Bimal Jain
Recently, the Central Government vide Notification No. 21/2015-ST and 22/2015-ST, both dated November 6, 2015 had appointed November 15, 2015 as the date from which, Swachh Bharat Cess (SB Cess) at the rate of 0.5% on value of all taxable services shall be applicable. However, a sudden imposition of SB Cess created lot of confusions like to calculate value of taxable services under Abatement Notification, treatment of SB Cess on ongoing transactions, availability of Cenvat credit of SB Cess, etc. Thus, the Central Government has issued following Notifications in order to clarify certain aspects of applicability of SB Cess:
SB Cess at the rate of 0.5% will be levied on value of all taxable services after availing abatement – Notification No. 23/2015-ST dated November 12, 2015:
The Central Government has amended Notification No. 22/2015-ST dated November 6, 2015, wherein an effective rate of 0.5% of the value of all taxable services was fixed to clarify that SB Cess will be levied on value of taxable services after availing the benefit of abatements by way of an exemption provided vide Abatement Notification No. 26/2012-ST dated June 20, 2012 i.e. SB Cess would be computed on abated value.
For example, in case of GTA services, presently, abatement of 70% is available and accordingly, Service tax is required to be paid on 30% of value of taxable service after exemption (abatement) of 70% as provided under the said Abatement Notification. The effective rate of Service tax including SB Cess would be 4.35% (i.e. 30% of 14.5%).
Value of taxable services for the purposes of SB Cess shall be the value as determined in accordance with the Service Tax (Determination of Value) Rules, 2006 – Notification No. 23/2015-ST dated November 12, 2015:
Notification No. 22/2015-ST dated November 6, 2015 has been further amended to provide that value of taxable services for the purposes of SB Cess shall be the value as determined in accordance with the Service Tax (Determination of Value) Rules, 2006. Thus, SB Cess would be levied in the following manner:
a. Computation of tax under Works contract: In terms of Rule 2A of the Service Tax (Determination of Value) Rules, 2006, Service tax along with SB Cess needs to be applied on taxable value. Accordingly, effective rate of tax would be as under:
b. Computation of tax on Restaurant and Outdoor catering services: In terms of Rule 2C of the Service Tax (Determination of Value) Rules, 2006, Service tax along with SB Cess needs to be applied on taxable value.. Accordingly, effective rate of tax would be as under:
SB Cess along with Service tax shall be paid on services under Reverse Charge Mechanism– Notification No. 24/2015-ST dated November 12, 2015:
The Reverse Charge Notification No. 30/2012-ST dated June 20, 2012 prescribes the specified services under full reverse charge wherein 100% service tax to be paid by the Service Recipient and under partial reverse charge wherein both the Service provider and service recipient has to pay specified percentage of Service tax. Now, the Central Government vide Notification No. 24/2015-ST dated November 12, 2015, has explicitly clarified that Service tax liability under Reverse charge/ partial reverse charge shall be applicable for the purposes of SB Cess mutatis mutandis. In other words, SB cess along with Service tax shall be paid on taxable services under Reverse Charge Mechanism as well.
Amendment made in Service Tax Rules, 1994 for providing alternate rate for SB Cess – Notification No. 25/2015-ST dated November 12, 2015:
As per sub-rules 7, 7A, 7B and 7C to Rule 6 of the Service Tax Rules, 1994, there is an alternative rate of Service tax for services, namely, air travel agents, insurance premium, purchase & sale of foreign currency and lottery.
Now, the Central Government has amended Service Tax Rules, 1994 vide Notification No. 25/2015-ST dated November 12, 2015 and thereby, inserted sub-rule (7D) after (7C) under Rule 6 as under:
“(7D) The person liable for paying the service tax under sub-rule (7), (7A), (7B) or (7C) of rule 6, shall have the option to pay such amount as determined by multiplying total service tax liability calculated under sub-rule (7), (7A), (7B) or (7C) of rule 6 by 0.5 and dividing the product by 14 (fourteen),during any calendar month or quarter, as the case may be, towards the discharge of his liability for Swachh Bharat Cess instead of paying Swachh Bharat Cess at the rate specified in sub-section (2) of section 119 of the Finance Act, 2015 (20 of 2015) read with notification No.22/2015-Service Tax, dated the 6th November, 2015, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 843 (E), dated the 6th November, 2015, and the option under this sub-rule once exercised, shall apply uniformly in respect of such services and shall not be changed during a financial year under any circumstances.“
In other words, if Service tax is payable at an alternative rate, SB cess would also be computed in proportion to such alternative rate in following manner:
Total Service tax liability calculated under Rule 6(7) (7A), (7B) or (7C) * 0.5 ÷ 14
For example, in case of air travel agent services, air travel agent opting alternative rate option is liable to pay Service tax at the rate of 0.7% of the basic fare in case of domestic bookings. Therefore, SB Cess would be payable at the rate of 0.025% i.e. 0.5 multiplied by 0.7% divided by 14 on this service.
To access complete Notifications, please click on the link below:
Point of Taxation
It is pertinent here to note that the Finance Ministry in its statement late Thursday has clarified that for determining event when the new levy i.e. SB Cess will be leviable on taxable services, norms laid down in terms of Rule 5 of the Point of Taxation Rules, 2011 would apply in the following manner:
(i) in case where payment has been received and invoice is raised before the service becomes taxable, i.e., prior to November 15, 2015, there is no liability of SB Cess.
(ii) In case payment has been received before the service became taxable and invoice is raised within 14 days from the date service is taxed first time, i.e. upto November 29, 2015, even then the Service tax liability does not arise. In other words, SB Cess will be payable where service is provided on or after November 15, 2015 but payment is received prior to that date and invoice in respect of such service is not issued by November 29, 2015.
An illustrative table to above clarification is given as under:
|S. No.||Date of applicability of SB Cess||Date of Invoice||Date of Payment Received||Applicability of SB Cess|
|1.||15th November, 2015||25th November, 2015||1st November, 2015||No|
|2.||15th November, 2015||30th November, 2015||1st November, 2015||Yes|
|3.||15th November, 2015||1st November, 2015||1st November, 2015||No|
|4.||15th November, 2015||16th November, 2015||16th November, 2015||Yes|
We are hoping that the Central Government comes up with Notification in this regard in order to provide clarity with certainty.
Our Comments: Under the Finance Act, Section 66B of the Finance Act, 1994 is the charging Section which levy Service tax on taxable services. We are reproducing herewith Section 66B of the Finance Act for the ease of convenience:
“66B. Charge of service tax on and after Finance Act, 2012.
There shall be levied a tax (hereinafter referred to as the service tax) at the rate of twelve per cent. on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.”
The literal interpretation of the charging Section 66B of the Finance Act means that the levy of Service tax is on the value of all taxable services ‘provided or agreed to be provided’. However, the collection of Service tax may be shifted to any point/ stage/event, in any manner, as prescribed by the Rules made in this behalf.
The Hon’ble Supreme Court in the case of All India Federation of Tax Practitioners Vs. Union of India [2007-TIOL-149-SC-ST] held that “a tax on a thing or goods can only be with reference to a taxable event” and the same contention was upheld again in the case of Association of Leasing & Financial Service Companies Vs. Union of India [2010 (20) STR 417 (SC)], wherein the Hon’ble Supreme Court observed that the taxable event under the Service tax law is the rendition of service.
In view of the above discussed provisions, the matter is subjected to debate as to whether SB Cess would be leviable on a service rendered prior to November 15, 2015 when SB Cess was not applicable at the time of its rendition, merely because its payment is received on or after the date of levy or the invoice is not issued within 14 days of the date of levy.
Here it would not be out of place to mention that POT Rules were framed by the Central Government in exercise of the powers conferred under Section 94 of the Finance Act, 1994 and such delegated legislation cannot be extended to go beyond the vires of the Finance Act, 1994.
FAQs released by CBEC on SB Cess
The Board has issued Frequently Asked Questions (FAQs) on SB Cess wherein certain issues under SB Cess has been clarified like:
“Q.8 Whether separate accounting code will be there for Swachh Bharat Cess?
Ans. Yes, for payment of Swachh Bharat Cess, a separate accounting code would be notified shortly in consultation with the Principal Chief Controller of Accounts. These are as follows:-
|Swachh Bharat Cess
Q.14 Whether Cenvat Credit of the SBC is available?
Ans. SBC is not integrated in the Cenvat Credit Chain. Therefore, credit of SBC cannot be availed. Further, SBC cannot be paid by utilizing credit of any other duty or tax.”
To access complete FAQs, please click on the link below:
In order to access our earlier article on SB Cess, please click on the link below: