CA Bimal JainCA Bimal Jain

Pursuing with Mr. Narendra Modi’s Dream of Swachh Bharat, in Union Budget 2015, a provision was made for levying a Swachh Bharat Cess (“SB Cess”) on all or any of the services, for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto. However, the SB Cess was to be levied from such date as may be notified by the Central Government after the enactment of the Finance Bill, 2015.

SB Cess now made applicable from November 15, 2015 – Notification No. 21/2015-ST dated November 6, 2015:

After the Hon’ble President had given assent to the Finance Bill, 2015 on May 14, 2015, the Ministry of Finance, Department of Revenue vide Notification No. 14/2015-ST dated May 19, 2015 had notified increase in the rate of Service tax from 12.36% to flat 14% (Subsuming Education Cess and Secondary & Higher Secondary Education Cess) to be effective from June 1, 2015. But SB Cess was left to be notified at a later date.

Now, the Central Government vide Notification No. 21/2015-ST dated November 6, 2015 has appointed November 15, 2015 as the date from which, SB Cess shall be effective. SB Cess would be over and above the present 14% Service tax rate.

SB Cess at the rate of 0.5% will be levied on value of all taxable services – Notification No. 22/2015-ST dated November 6, 2015:

Section 119 of the Finance Act, 2015 (Chapter VI) that contains a provision of new levy of cess called the SB Cess, empowers the Central Government to impose Cess on all or any of the taxable services at the rate of 2% of the value of such services, for the purpose of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.

Therefore, the Central Government has also issued another Notification i.e. Notification No. 22/2015-ST dated November 6, 2015 to exempt all taxable services from payment of SB Cess which is in excess of 0.5% of the value of taxable services. In other words, w.e.f. November 15, 2015 ‘SB Cess’ @ 0.5% will be levied on value of all taxable services i.e. the effective rate of Service tax including SB Cess will be 14.5% from November 15, 2015.

No SB Cess on services specified under the Negative List of services or otherwise exempted by a notification issued under sub-section (1) of section 93 of the Finance Act, 1994:

Notification No. 22/2015-ST dated November 6, 2015 further provides that SB Cess shall not be leviable on services which are exempt from Service tax by a notification issued under Section 93(1) of the Finance Act, 1994 or otherwise not leviable to Service tax under Section 66B thereof.

Therefore, SB Cess @ 0.5% will be levied on value of all taxable services except the following:

Open issues that require immediate clarification from the Board:

It is worth observing that the Government has not provided any further details of the levy of SB Cess. The continuous hike in Service tax rate from 12.36% to 14% and now 14.5% will definitely raise the burden of taxes on the ‘Aam Aadmi’. Further number of issues may crop up if no further clarification is issued, few of which are discussed as under:

a) Accounting head: What will be the accounting head for depositing SB Cess?

b) Availability of Cenvat credit of SB Cess in the hands of Manufacturer or Service Provider: 

Whether Cenvat credit of SB Cess would be available or not as there is no amendments proposed in the Cenvat Credit Rules, 2004 pertaining to availment of Cenvat credit of SB Cess?

If no credit is made available, it would directly add to the cost of goods and services. In case of export of goods or services, exporter would not be entitled for refund of SB Cess.

c) Calculation of value of taxable services under Abatement Notification: How SB Cess would be dealt while availing the benefit of abatements by way of an exemption provided vide Abatement Notification No. 26/2012-ST dated June 20, 2012.

For example, under GTA services, presently, abatement of 70% is available and accordingly, Service tax is required to paid on 30% of value of taxable service after exemption (abatement) of 70% as provided under the said Abatement Notification.

Hence, question is arising → What would be effective rate of Service Tax including SB Cess. Whether it would be leviable at 4.2% (i.e. 30% of 14%) + 0.5% = 4.7% or 30% of 14.5% = 4.35%?

As per our understanding, it should be 4.35% as taxable value after abatement i.e. 30% for GTA Service for chargeability of Service Tax and SB Cess would be SAME in terms of sub-section (5) of Section 119 of the Finance Act, 2015, which states that “the provisions of Chapter V of the Finance Act, 1994 and the rules made there under, including those relating to refunds and exemptions from tax, interest and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Swachh Bharat Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services under Chapter V of the Finance Act, 1994 or the rules made there under, as the case may be.”

However, it is better that a proper clarification is issued in this regard.

d) Treatment of SB Cess on ongoing transactions: With the Service tax rate (including SB Cess) of 14.5% becoming effective from November 15, 2015, there are chances of turmoil being faced by the service provider in respect of the ongoing transactions for which either certain advance payment is received prior to November 15, 2015 but the completion of provision of service may take place post November 15, 2015 or vice versa.

Tussle between Rule 4 of the Point of Taxation Rules, 2011 and Section 67A of the Finance Act, 1994 will again crop up but, we are of the considered view that SB Cess should be levied on value of taxable services rendered on or after November 15, 2015.

e) Implication of SB Cess on services specified under Rule 6 of Service Tax Rules, 1994: Implication of SB Cess while computing Service tax on services specified under Rule 6 of the Service Tax Rules, 1994 namely air travel agent, insurance premium, purchase and sale of foreign currency needs to be clarified as there is no specific exemption for such services.

Other important points for immediate digest:

a) No SB Cess on goods: SB Cess is levied under Chapter VI of the Finance Act, 1994 and is applicable only on provision of taxable services. Hence, no SB Cess shall be imposed on the goods manufactured.

b) Computation of tax under Works contract: In terms of Rule 2A of the Service Tax (Determination of Value) Rules, 2006, tax needs to be applied on the value so arrived at the rate of 14.5%. Accordingly, effective rate of tax would be as under:

  • In case of original works: 5.8% (14.5%*40%); and
  • Other than original works: 10.15% (14.5%*70%)

c) Computation of tax on Restaurant and Outdoor catering services: In terms of Rule 2C of the Service Tax (Determination of Value) Rules, 2006, tax needs to be applied on the value so arrived at the rate of 14.5%. Accordingly, effective rate of tax would be as under:

  • In case of Restaurant services: 5.8% (14.5%*40%); and
  • In case of Outdoor catering services: 8.7% (14.5%*60%)

d) Computation of tax under Reverse Charge Mechanism: SB cess along with Service tax shall be paid on services under Reverse Charge Mechanism as SB Cess is applicable on all taxable services.

e) SB Cess to be charged and shown separately in Invoice: SB Cess would be over and above the present 14% Service tax rate. Hence, SB Cess 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 head which may be notified separately.

With the aim of Mr. Narendra Modi’s Government to introduce GST by April 1, 2016 wherein all the Cesses on goods and services will be subsumed under the GST, the logic of introducing such a levy under the banner of SB Cess just few months before, will definitely create hue and cry among the Trade.

As SB Cess awaits its introduction, in days to come, an immediate detailed clarification on the various aspects of applicability of SB Cess and availability of its credit will surely be welcomed by the industry at large.

Relevant Provisions pertaining to SB Cess in Chapter VI of the Finance Act, 2015:

THE FINANCE ACT, 2015 – CHAPTER VI

SWACHH BHARAT CESS

“119. (1) This Chapter shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

(2) There shall be levied and collected in accordance with the provisions of this Chapter, a cess to be called the Swachh Bharat Cess, as service tax on all or any of the taxable services at the rate of two per cent. on the value of such services for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.

(3) The Swachh Bharat Cess leviable under sub-section (2) shall be in addition to any cess or service tax leviable on such taxable services under Chapter V of the Finance Act, 1994 (32 of 1994), or under any other law for the time being in force.

(4) The proceeds of the Swachh Bharat Cess levied under sub-section (2) shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the Swachh Bharat Cess for such purposes specified in sub-section (2), as it may consider necessary.

(5) The provisions of Chapter V of the Finance Act, 1994 and the rules made there under, including those relating to refunds and exemptions from tax, interest and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Swachh Bharat Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services under Chapter V of the Finance Act, 1994 or the rules made there under, as the case may be.”

We take this opportunity to wish you and your family a very joyous & prosperous Diwali. May this Diwali light up new dreams, bring fresh hope and fill your days with pleasant surprises and alluring moments.

HAPPY DIWALI!!

(Author can be reached at Email: bimaljain@hotmail.com)

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0 responses to “Swachh Bharat Cess @ 0.5% on value of all taxable services levied from November 15, 2015”

  1. s.a.gafoor says:

    sir please give Accounting code of Swachh Bharat @0.5%

  2. s.a.gafoor says:

    sir give me Accounting code of Swachh bharat

  3. Jagadish says:

    Is there any specific format of updated ST-3 form where swatchh bharat cess will capture ? Can you get the latest changes in ST-3.

  4. kandregulasreenivas says:

    Rate of cbc 2% or0.5%.please clarify applicability

  5. kandregulasreenivas says:

    Is the sbc rate 2% or 0.5%.clarify applicability

  6. anand says:

    Good for Modi -Hope this will fund for his Overseas Trips – Wonderful Swach Trips!

  7. Raj Das says:

    not perfect

  8. nirmal gupta says:

    thank you for this article and happy diwali to all .modi is rockstar & he did good job for the nation

  9. JAI KUMAR JAIN says:

    I am unable to understand that how such cess can improve the SWACHH BHARAT ABHIYAN and making India clean unless we the citizens put our individual efforts at every moment/place. The need is to change our mindset and make it only life time ADDICTION. We all know the level of roads and other cleaning services allegedly provided by the Civic Authorities. In LUCKNOW (home town of our beloved Union Home Minister) Sewage Treatment Plant(s) are not working for last many years and we talk about GANGA-GOMTI-YAMUNA-SWACHH-CESS-EMPTYING CONSUMERS POCKET. CA J K JAIN…

  10. Banke Mittal says:

    Very useful and informative article on mentioned issue.

  11. CA Manzurhasan Shaikh says:

    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, notification would apply for SBC also in the same manner as apply for service tax.

  12. Raushan Kumar Singh says:

    Thank you sir, for such a valuable and elaborative writeup on one of the ongoing issue. I welcome such any initiative of government for solving vibrant issues. We all should acknowledge that if you want to do better, look better, perform better, you shall have to pay for in terms of money and disciplined contribution to good action taken by anyone at the level of society, state or country. We spent lot on our luxury and unnecessary uses and feel proud by doing so but when we pay something to exchequer consolidated growth of whole nation we start crying and start blaming government. I want to ask all those who do so what should be our duty towards the nation…..is our duty to demand LPG gas at subsidised rate, new trains with standard facilities, low fair, lower tax rate, high exemptions, good infrastructure, strong defence forces, high technology, higher sefty, cheap petrol/power/water/electricity, strict rule -regulation but with lower compliance and freedom to violate it for own interest. Sorry to say so ruderude but If this is our expectation, then no government can make us happy and the country stronger in tough competition with US and China.

    Once again I thank for such awesome article.

  13. Namrata Bhanushali says:

    Will house registration cost will also go up? Recently I hv purchase 2bhk flat at Bangalore n will get possession by Nov end so I hv to go fr registration. Pls comment

  14. Siddharth Duge says:

    Pay MODI Cess for electing BJP.

  15. govind says:

    So,
    What more taxes are left. I remember that Aurngazeb imposed a tax on growth of hair. Hope Modi government will impose tax on wearing a pant and shirt.

  16. Shashi Kumar U says:

    Thank you for excellent write up. Your writing has always been very useful. HAPPY DIWALI

  17. Rajesh Gupta says:

    Very useful article
    Wish you a very happy diwali

  18. CA. Subhash Chandra Podder says:

    The write up is very good. But SB Cess will increase the cost and burden to all AAM ADMI .

  19. CA Vinod Lakhera says:

    Thanks for the detailed update and HAPPY DIWALI you too sir

  20. VVK says:

    It is good article & brief of all aspects.

    you are requested to clarify one aspect.
    The Swachh Bharat Cess has been levied under Section 119 of the Finance Act, as a Service Tax on all taxable services. Hence, collection of this Cess would be under Section 119 and not under section 66/66B.
    The RCM Notification is issued under subsection (2) of Section 68 of Finance Act,1994, which is also specified for Service Tax payment / collection under Section 66.
    Hence, Notification No.30/2012-ST (RCM) is for collection of Service Tax leviable under Section 66, whereas Swachh Bharat Cess is levied/ collected under Section 119, hence Applicability of notfn.30/2012-ST for payment of Swachh Bharat Cess under RCM is not clear.

    Kindly comment on this aspect also.

  21. Subhash Bangad says:

    Really a very elaborate and very prompt update .

  22. VUM Rao says:

    Presented in an excellent way. well done and keep the good work going

  23. Harish says:

    Its good decision to develop swachh bharat program

  24. Mahesh Kadam says:

    It’s good thing, we all has to be take care,

    and Wish u happy diwali.

  25. R C Verma,Advocate, Central Excise & Service Tax, New Delhi says:

    Excellent and prompt update. Thanks

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