CA Madhukar N. Hiregange

CA Ashish Chaudhary

Finance Act 2015 had provided provision for levy and collection of Swachh Bharat Cess (SBC) under section 119 of the Finance Act, 2015 at a rate not exceeding two percent on the value of services. The levy was to become effective from the date to be notified by the Government. The objective of behind introducing SBC was to fund for Government’s flagship program of Swachh Bharat. Incidentally, it was also seen as precursor to introduction of GST where rate of tax is expected to be substantially higher than current rate of service tax.

Also Read- Article by CA Bimal Jain- Swachh Bharat Cess @ 0.5% on value of all taxable services levied from November 15, 2015

Now the government has come up with introduction of SBC immediate post festive season. Notification no. 21/2015 has been issued appointing 15th November, 2015 as the date from which the provision of section 119 would become effective. This means, the cess has been introduced on all taxable services w.e.f. 15.11.2015.

Simultaneous to this, another notification no. 22/2015-ST has been issued whereby exemption has been granted in excess of SBC calculated at the rate of 0.5 percent of the value of taxable services. Effectively, rate of cess would be 0.5% and new rate of service tax would be 14.5%.

There would be consequential impact on many other aspects under services tax law which the author has attempted to discuss in FAQ form.

1. What would be effective rate of service tax post introduction of SBC?

Effective rate of service tax post introduction of SBC would be 14.5%.

2. In case of services covered by abatement, what would be effective rate of tax? Say GTA service where presently tax is payable at 4.2% (14%*30%)?

Section 119 provides that SBC would be levied and collected as service tax. Further, sub section 5 provides that provision of chapter V of the Finance Act would apply to SBC as they apply to service tax. The abatement notification is issued under section 93 (chapter V) of the Act.              So, this notification would apply for SBC also in the same manner as apply for service tax. Hence, the effective rate of tax on all abatement services would be 14.5% * effective rate under Notification 26/2012-ST. For GTA, it would be 14.5%*30%= 4.35% (not 4.70%)

3. In case of works contract, how would the tax be calculated?

The value of services would be calculated as per Rule 2A of Service Tax (Determination of Value) Rules, 2006. Tax needs to be applied on the value so arrived at the rate of 14.5%. Effective rate of tax in case of original works and other than original works would be 5.8% (14.5%*40%) and 10.15% (14.5%*70%) respectively. Similar, would be for restaurant and outdoor catering services.

4. Whether SBC would be applicable on services covered by Rule 6 of Service Tax Rules (i.e. air travel agent, insurance premium, purchase and sale of foreign currency)

There is no specific exemption for such services. Therefore technically speaking one has to compute taxable value for the purpose of computing SBC though for computing service tax the special rates are applied. However paper writer feels that there may be consequential amendment to deal with it.

5. I am paying service tax on few services under reverse charge mechanism. How would SBC have impact on my tax liability?

SBC would be applicable on all taxable services. Hence, you need to pay SBC along with service tax on the services availed by you.

6. Whether SBC needs to be collected and paid separately from service tax or subsumed in existing service tax rate?

SBC would be levied, charged, collected and paid to government independent of service tax. This needs to be charged separately on the invoice, needs to be accounted separately in the books of account and needs to be paid separately under separate accounting code which should be notified separately.

7. Services presently provided by me are covered by mega exemption notification i.e. 25/2012-ST. Do I need to charge SBC on services provided by me?

No, it has been specifically provided in the NotificationNo. 22/2015 that SBC would not be applicable on services exempted from levy of service tax. Hence, you need not to charge SBC on the services covered by mega exemption notification. Similar would be treatment of negative list services.

8. If services have been provided prior to 15th November but invoiced on or after 15th November, whether SBC would be applicable? (no advance received)

There is anomaly between section 67A of the Finance Act, 1994 and Rule 4 of Point of Taxation Rules, 2011. As per section 67A, the rate of tax would be applicable as on the date on which service is provided. On the other hand, Rule 4 of Point of Taxation Rules provides that rate of tax would be applicable based on 2 out of 3 events.

If one follows section 67A, SBC would not be applicable in the given example. On the other hand, if one follows Point of Taxation Rules, 2011SBC would be applicable as two (raising of invoice and receipt of consideration) out of three events are occurring post 15.11.2015.

9. What would be rate of tax where services are provided before and after imposition of SBC?

The impact of introduction of SBC on different situations is summarized below. (assuming that applicable rate is determined as per Rule 4 of Point of Taxation Rules, 2011)

Service provided Invoice issued Payment received Rate to be considered
Before imposition of SBC After imposition of SBC After imposition of SBC 14.5%
Before imposition of SBC Before imposition of SBC After imposition of SBC 14%
Before imposition of SBC After imposition of SBC Before imposition of SBC 14%
After imposition of SBC Before imposition of SBC After imposition of SBC 14.5%
After imposition of SBC Before imposition of SBC Before imposition of SBC 14%
After imposition of SBC After imposition of SBC Before imposition of SBC 14.5%

 10. How would liability be determined in case of reverse charge services where services have been received prior to 15.11.2015 but consideration paid post 15.11.2015?

In case of reverse charge services, point of taxation as per Rule 7 of Point of Taxation Rules, would be the date on which consideration is paid to service provider. Hence, SBC would also be required to be paid in such cases.

11. Whether SBC paid on input service would be eligible as credit?

There is no amendment in the Cenvat Credit Rules, 2004 regarding availment and utilisation of SBC. In the absence of the same, credit would not be admissible. (Are we really moving toward GST regime where it is claimed that there would be no cascading effect of taxes and full credit would be allowed) One can expect suitable amendment is brought in Cenvat Credit Rules, 2004 to provide for availment and utilisation of SBC. If not brought, this would be very trade regressive measure.

12. What would be impact of imposition of SBC on cost of goods and services?

In the absence of any notification providing for availment of credit of SBC, it would directly add to the cost of product and services. If you are manufacturing excisable goods, you will have to factor in additional cost of 0.5% on all services received by you in the course of manufacturing. Similarly, if you are providing taxable service, SBC paid on all your input service become cost. If you are exporter of goods or service, you will not be entitled for refund of SBC.

13. I am providing both exempted and taxable service and reversing credit @ 7% of value of exempted service under Rule 6 of Cenvat Credit Rules? Do I need to reverse the SBC also?

SBC would be levied and collected as service tax. Reversal under Rule 6 is not payment of “service tax” but it is payment of “amount”. Hence, reversal of SBC is not required under Rule 6 of Cenvat Credit Rules, 2004.

14. I am manufacturing excisable goods. Do I also need to charge SBC in addition to excise duty?

No, SBC is levied under chapter VI of the Finance Act, 1994 and is applicable only on provision of service. There is no imposition of SBC on the goods manufactured hence, you are not liable to pay SBC on manufacturing of excisable goods.

Conclusion

Though the objective of the collection of specific cess for a Swachh Bharat Mission is appreciable, the psychological impact on common man would be high with increased burden of taxes. This is especially with the fact that there is no provision for credit (unless it is provided for) and also additional burden on the business man to keep track of the one more tax, as to invoicing, record keeping, payment and returns filing. You can reach authors at madhukar@hiregange.com or ashish@hiregange.com.

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0 responses to “Impact of Swachh Bharat Cess on various services: FAQs”

  1. Swathi A says:

    Dear Sir,

    If the bill has been raised on Dec 3, 2015 for services provided in Nov. 2015, Swachh Bharath Cess will be applicable for 15 days or for the whole of the month, since the applicability date is 15.11.2015.

    Kindly clarify

  2. Tejas says:

    Hi there, can someone please tell me the service tax rate payable by a rental property owner on the rent received for the month of November’15 ? Is it 14% or 14.5% or a mix of both ?

  3. lalit goyal says:

    Dear Sir

    I am working in excise able unit so please tell me increase of .5% of SB cess benefit in excise (cenvet input)

  4. Antony Raj says:

    Dear All

    Please explain SB Cess on my case: This is rent on immovable properties, I will be raise the Invoice on 30.11.2015 for November month rent. For this case SB cess only applicable for 16 Days (15.11.15 to 30.11.15) or for the whole month.

    Kindly clarify the same.

  5. Shrikant Roplekar says:

    What about CENVAT Benefit that needs to be clarify before imposing the SWACHHA BHARAT CESS. Services related to Fixed Assets installations may affect the cost of purchase if any if the CENVAT is not applicable or may the officers would loose the opportunity to add the cost in FA if CENVAT is not allowable. This may also affect on calculated depreciation if any. Please clarify. +91-0-9890153909

  6. CA. Sanjeev Singhal says:

    please refer your Q.9 for the POT , In my opinion Rule 5 of the POT will be applicable since this cess has been introduced for the first time instead of Rule -4 of POT . Please Clarify.

  7. Richa (@Richaj1810) says:

    Sir, if the premium for a policy is INR 50,000, what would be the cess amount that I will pay additionally?

  8. KASTURI SATISH PAI says:

    Dear Sir,
    If the invoice for rental property for the month of November 2015 is raised before 15th November and the rent amount is received in December 2015, what is the rate of Service Tax to be charged?

    • Abhijit says:

      Hi if the rentals period payable is for the month of November , and you get the rentals collected in advance. and due to any reason the rentals was not released by the tenant , only 14% will be applicable .

      • KASTURI SATISH PAI says:

        Hi Abhijit,
        There is no collection of rentals in advance. It is a routine/normal course. Rent for the month of November 2015 is received in December 2015. Only the rent invoice for November 2015 is raised before 15th November. In this situation, what is the rate of Service Tax to be charged?

    • Rashmi says:

      14% is applicable

  9. Ashok Katarmal says:

    To Collect funds….is it required to abolish one tax ? .and introduce new one tax…

    I Think there are many taxes dues to government, people has not paid there dues…some how getting escaped….

    Collecting the dues also would have Good Impact.

  10. Pabitra Jena says:

    Very Good..
    Diwali Gift by the Govt…
    It’s nothing but to recover the election expenses incurred at Bihar…
    I had a great expectation from this Govt to drive our nation on the right path as Vajpayee Govt.. But seems they are like others who only looks for power…

    Very Bad…

    • Abhijit says:

      Sir, the impact of the SBC will be only 50 paise per RS 100 spend, I think we need to rise above the normal view , that the Government is only for the rich and is only interested to collect money. The rich has larger burden on any tax changes . This Tax is welcomed by the entire country and will not effect the common man in terms of money but we will see a genuine effort by the Govt to work for the people and make our country a beautiful place to live in

  11. M Maruthi says:

    Dear Sir, Please inform whether TDS is to be collected on the SBT on Rent amount etc.,
    Regards
    M Maruthi

  12. Rahul Ojha says:

    Sir Whether SBC liability can be adjusted through Cenvat credit

    • ashish chaudhary says:

      There is no consequent amendment in the Cenvat Credit Rule, 2004. Hence, neither SBC would be eligible credit nor can be paid by utilising credit.
      One can expect that suitable amendment is brought in Cenvat Credit Rules, 2004 to provide for availment and utilisation of SBC.

  13. Jagirdar Jayaprakash says:

    Very Very useful Information.
    Thank you

  14. govind says:

    BJP government is proving that it is pro rich and business government. It is not interested in common people. Why so many taxes. Government should declare a white paper on whether the education cess is utilized only for education.
    Now this cess. Next year we will not vote to BJP

  15. Dhirendra says:

    Show Service Tax @14% separately in invoice and 0.50% SBC separately and have separate ledger for this amount since it is to be deposited under special tax code (to be announced) in to Government Treasury. Separate Ledger will help in future audit time.

    Abatement of SBC is still under grey area of Law, so beware of it.

    Dhirendra Gandhi

  16. Chandrashekhar Shetye says:

    The notification says, “Swachh Bharat Cess calculated at the rate of 0.5 percent. of the value of taxable services:”
    I visit a restaurant and my bill is Rs 1000/-. So my taxable service is Rs 400/- (i.e. 40 % of the bill value).
    At the rate of 14% “the value of my taxable service is Rs 56/-”
    The Swachh Bharat Cess at 0.5% of “the value of my taxable service is Rs 56/-” is ).28. Therefore my total Service Charge, including “Swachh Bharat Cess” = Rs 56 + Rs 0.28 = Rs 56.28.
    On Rs 1000/- restaurant bill my total service charge is Rs 56.28
    Therefore, the rrevised rate of service charge is 5.628% Please comment.

  17. Selvakumar says:

    Dear Sir,

    Normally Cess are calculated on the base value of Tax portion, not base on Taxable value. Like Education Cess & SHE cess. Here for SB Cess why we are taking Taxable value as a base instead of Tax portion as base value.

    Kindly enlighten me in this aspect.

    • ashish chaudhary says:

      Section 119 (2) under Chapter VI of the Finance Act 1994 specifically provides that the same shall be SBC would be calculated on the VALUE of services. This could be said to be in the nature of tax only though nomenclated as cess.

  18. sahil says:

    Can anyone please tell me if the invoice of rental property is raised before 15th November and payment is also received before 15th november 2015. What would be the rate of service tax on that month????

  19. SATHYA NARAYANA CHETTY. A. says:

    Very Very useful Information for the people who are practicing in Taxation and Relevant matters.

  20. Manish says:

    Thank you Mr. Madhukar & Mr. Ashish. Very nice explanation in such a short time.

    I would like to know about Cenvat of SBC in case of amendment in CCR. Please do keep update us in future with your such intelligent posts.

    Thank you once again !

    Manish

  21. Sambhav Daga says:

    Kindly Clarify regarding the below mentioned points:

    1. According to me, it is a new levy. So, Rule 4 of POT – Change in effective rate should not apply because Section 66B says the rate to be 14% and thus, the rate cannot go beyond the main section.

    2. How to calculate rate after abatement – For Instance, Accommodation in hotels 14.5*0.6 = 8.7 Percent or (14*0.6)+0.5 = 8.9 Percent.
    According to me,
    If Notification 26/2012 is read properly, the rate should be 8.9 and not 8.7.

    Please discuss.

  22. Paras Dawar says:

    very informative

  23. CS DILIP GAIKWAD says:

    It’s a very useful information all sort of people.

  24. Sunil Jain says:

    India is in Development stage and people across the country earning higher than ever, either living class of standard, some are getting much higher and some getting as usual as their needs, government also needs funds, to run the projects, SBC is necessary to impliment clean india. Uses of funds collected through SBC may be different but needs of money is necessary for organisar minor taxation can not impact on individual income, as they are getting much higher and spending much excessive compare to burden of taxation.

  25. kailash goyal says:

    NOw again this new from of imposition of additional tax previously all cess were abolished and merged on the plea that it crates lot of of administrative issues and clubbed in tax rate . we fail to understand logic . Govt. should take one tax now every other day is due date of payment of Tax whether we will do business r get involved in these compliances / notices / submission of information etc.

  26. Vaibhav Sharma says:

    SIR AT THE TIME OF RAISING THE INVOICE DO WE NEED TO SHOW AND CALCULATE SBC

    SEPARATELY OR WE CAN STRAIGHT AWAY CALCULATE THE TAX BY 14.5% AND MENTION IT ON

    TO THE INVOICE.

  27. Monarch Bhatt says:

    In my view, POT will be determined as per Rule 3 and Rule 4 will not be applicable at all as it is new levy and there is no change in the rate of taxes.

  28. Kapil says:

    I am Exporter, I use Certain Services for Export of Goods, Can i Claim 0.5% SBC as Refund in relation to Export.

    • ashish chaudhary says:

      Refund can be taken either under Rule 5 of Cenvat Credit Rules, 2004 or under Notification No. 41/2012-ST.
      There is no amendment in the Cenvat Credit Rules till now. Hence, neither you may take credit nor claim refund. (unless rules amended)
      One can evaluate taking rebate under Notification No. 41/2012-ST as SBC would also be collected as service tax.

      • Sujatha says:

        I am working for an IT company where in both domestic and export services are provided.
        We also have Cenvat credit on certain inputs which we adjust against service tax payable under domestic services.

        If input SBC cannot be adjusted against output SBC on domestic services, how to clear this liability, should we pay cash to department only on SBC

        Please clarify

        • ashish chaudhary says:

          We need to wait for sometime for clarification from Board. As the law stand today, this cannot be taken as credit and hence cannot be utilised for payment of service tax on domestic liability. This would be against stated policy of government that only goods and services can be exported outside India, not the tax associated with it.

  29. Raju Iyer says:

    FAQ’s are well presented.

    We will need to keep our fingers crossed for credit availability since cascading impact will otherwise be huge

  30. Abubaker A says:

    Sir,
    The service tax is payable even by the poor man who is having cell phone and using other services for which he has to pay SBC 0.5% extra. What can we do? we have to pay the taxes one by one and also we have to meet the increased cost of pluses and other essentials.

  31. CA Chandravijay Shah says:

    Please reconsider your reply in the following situation reflected in your Article: “Service provided: After imposition of SBC, Invoice issued: Before imposition of SBC, Payment received: After imposition of SBC, Rate to be considered: 14.5%”. Issue of Invoice before rendering service is a non-starter and unthinkable.

  32. Amit Guleria says:

    thanks for this notification…

  33. Mahendar says:

    Very informative

  34. Pawana says:

    Very useful and handy article

  35. Vivek Sharma says:

    Wonderful explanation. Thank you Mr. Madhukar & Mr. Ashish. Awesome explanation in such a brief time. Please do update us in future with your such intelligent posts.

  36. GRA says:

    This NDA government is by passing all democratic routes to increase the taxex and only aim is to accumulate money to spent irrationally and When the people of this country elected this government only to administer tax with minimum burden on common men either in payment or in compliances where as the contrary is happening today ! This government is only bureaucrates run government , their writ rules every where and corruptions at every level had not reduced even single percentage point !!!

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