The Finance Act, 2015 has empowered the Central Government to impose Swachh Bharat Cess (SBC) upto 2% on value of taxable service. Recently Central Government vide Notification No.21/2015-Service Tax, dated 6th November, 2015 has imposed SBC at the rate of 0.5% on all the taxable services w.e.f 15th November, 2015.
CALCULATION OF SBC
It must be noted that unlike Education cess which was applicable earlier being calculated on Service tax amount, SBC is to be calculated on Value of Taxable services; effectively increasing the service tax rate to 14.5%.
IMPLICATIONS ON SERVICE PROVIDER
Implications on Invoice
SBC is to be charged separately on the Invoice as a different line item in invoice just like Education cess was charged earlier. CBEC through its press release has also clarified that SBC is to be accounted and treated similarly to Education cess.
For payment of Swatch Bharat Cess, a separate accounting code would be notified shortly in consultation with the Principal Chief Controller of Accounts. These are as follows:-
|Swatch Bharat Cess
|Tax Collection||Other Receipts||Penalties||Deduct Refunds|
For those availing Abatement
Value of SBC will be calculated in the same manner as Service Tax is calculated in case of services for which Abatement is applicable.
For example, in the case of GTA, [Service Tax + SBC]% would be (14% Service Tax + 0.5% SBC) X 30% = 4.35% (4.20%+0.15%)
Cenvat Credit Rules have prescribed the duties and taxes for which credit is available. However there is no amendment till now in these rules. Hence till now no Cenvat credit on SBC paid is available.
Point Of taxation
Rule 5 of Point of Taxation Rules, 2012 is applicable in case of SBC since it has been made applicable for the first time. However in cases where Rule 5 is not applicable i.e cases in which Payment is on or after the date of levy will be governed by Rule 3. Hence the Point of Taxation in different cases will be as follows:
|Date of Completion of Service||Date of Payment||Date of Invoice||Point of Taxation|
Further in cases where Rule 5 is applicable, Date of Payment shall be Date of credit in Bank if it is not within 4 working days after date of levy.
Services covered under Rule 2A, 2B or 2C of Service Tax (Determination of Value) Rules, 2006
Value of Taxable service in these cases will be calculated by multiplying the value determined in accordance with these respective rules with [14% + 0.5%]. Therefore, effective rate of Service Tax plus SBC in case of original works and other than original works under the works contract service would be 5.8% [(14% + 0.5%)*40%] and 10.15% [(14% + 0.5%)*70%] respectively. Similar, would be the tax treatment for restaurant and outdoor catering services.
Person liable for paying the service tax under sub- 6 rule (7), (7A), (7B) or (7C) of rule 6 of Service Tax Rules, shall have the option to pay SBC as determined as per the following formula:-
Service Tax liability [calculated as per sub-rule (7), (7A), (7B) or (7C)] X 0.5%/14%
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.
An example for this is as follows:
A lottery distributor of a lottery in which less than 80% is distributed as prize and total amount on selling lottery ticket collected is 15 Lakhs than in this case as per valuation rules, Service tax payable is Rs.22000; value of SBC in this case will be Rs.22000 x 0.5%/14% i.e Rs. 786.
IMPLICATIONS ON SERVICE RECEIVER
Government has issued notification No. 24/2015-Service Tax dated 12th November, 2015 to provide that reverse charge under notification No.30/2012-Service Tax dated 20th June, 2012 shall be applicable for the purpose of levy of Swatch Bharat Cess mutatis mutandis.
Point of Taxation for Service Receiver
Rule 7 of Point of Taxation Rules overrules Rule 3, 4 and 7 but it does not overrule Rule 5. However for applicability of Rule 5, Date of payment should be prior to date of levy. Hence for checking applicability in case of reverse charge Rule 7 will be referred. Various cases for consideration can be as follows:
|Date of Invoice||Date of Payment||Point of Taxation|
Other Implications shall be applicable on Service Receiver mutatis mutandis.
(Author is a CA Final Student from Delhi and can be reached at firstname.lastname@example.org)