CS Aditya Singhania
Swachh Bharat Abhiyan
The nation’s biggest ever cleanliness drive ‘Swachh Bharat Abhiyan’ is beyond the politics and stimulated by patriotism moved by the Hon’ble Prime Minister Shri Narendra Modi which is expected to cost over INR 62,000 crore.
Swachh Bharat Cess
In consonance with the aforesaid mission of Swachh Bharat a provision was made in the Budget 2015 for levying a Swachh Bharat Cess on all or any of the services, for the purposes of financing and promoting Swachh Bharat initiatives.
Need for levy of Swachh Bharat Cess
A country of more than 120 crore people mostly facing dirty surroundings cause many diseases, like, malaria, dengue, diarrhea, jaundice, cholera etc., with associated high public health expenditure. For this purpose, it would be pertinent to note that according to the Government of India estimates, expenditure on health adds up to Rs.6,700crore annually. Increased allocation for Swachh Bharat Abhiyan can prevent many of these diseases with consequential benefit to one and all. Besides Study by American Journal of Tropical Medicine and Hygiene reveals that between 2006 and 2012, India reported an annual average of 20,474 dengue cases, with direct medical cost of about Rs.3500 crore per annum. Swachh Bharat Cess is not another tax but a step towards involving each and every citizen in making contribution to Swachh Bharat.
Accordingly, the Government has decided 15th November 2015 as the date for levy, a Swachh Bharat Cess at the rate of 0.5% on all services which are presently liable to service tax. Thereby meaning, 50 paisa will be levied & collected on rendering a taxable service of INR 100/-.
Provisions in Service Tax Law
Let me first place the relevant extracts of Section 119 [Chapter VI] of the Finance Act 2015 which contains the provisions for levy and collection of Swachh Bharat Cess.
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, 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 thereunder, 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 thereunder, as the case may be.”
A very careful reading to the aforesaid section make it crystal clear that the Swachh Bharat Cess is levied & collected as service tax and all the provisions as to levy and collection of service tax on taxable service is applicable to Swachh Bharat Cess.The Government, vide Notification No. 21/2015 – ST dated 06th November, 2015 notified the levy of SBC on all taxable services w.e.f 15th November, 2015. Besides vide issuance of Notification No 22/2015 granted an exemption in respect of Swachh Bharat Cess (hereinafter called SBC).
Undoubtedly, the levy of SBC has made the Indian industry into dilemma in regard to the compliance of norms contained in Chapter V of the Finance Act, 1994. But the only solace is that SBC is 0.5% only due to an exemption and not 2% as the enactment says. In this regard, the CBEC has tried to clarify much of the issues pertaining to it which are placed here-in-below for easy of reference:
A Cess which shall be levied and collected in accordance with the provisions of Chapter VI of the Finance Act, 2015 called Swachh Bharat Cess, as service tax on all the taxable services at the rate of 0.5% of the value of taxable service. SBC is not a cess on Service Tax.
SBC would be calculated in the same way as Service tax is calculated. Therefore, SBC would be levied on the same taxable value as service tax.
Date of implementation of SBC
Notification No 21/2015-ST dated 6th November, 2015 notifies 15th day of November, 2015 as the date from which provisions of Swachh Bharat Cess will come into effect.
Will SBC be leviable on exempted services and services in the negative list
The Central Government vide notification No 22/2015-ST dated 6th November 2015, has notifiedthat SBC shall be applicable on all taxable services except services which are either fully exempt from service tax under any notification issued under section 93(1) of the Finance Act, 1994 or are otherwise not leviable to service tax under section 66B of the Finance Act, 1994.
In other words, it is not leviable on services which are fully exempt from service tax or those covered under the negative list of services.
Is SBC be required to be mentioned separately in invoice
SBC would be levied, charged, collected and paid to Government independent of service tax. This needs to be charged separately on the invoice, accounted for separately in the books of account and paid separately under separate accounting code which has been notified vide Circular No. 188/7/2015-ST dated the 16th November, 2015.
Besides that SBC may be charged separately after service tax as a different line item in invoice. It can be accounted and treated similarly to Education cesses.
Calculation of SBC for services under reverse charge mechanism (RCM)
The very popular Reverse Charge Mechanism wherein the liability has been shifted from service provider to the service recipient to pay service tax under section 68(2) of the Finance Act, 1994. In regard to RCM, it would be pertinent to note that the provisions of Chapter V of the Finance Act, 1994, and the rules made thereunder are also applicable to SBC as per section 119 (5) of the Finance Act, 2015 mentioned above in relevant extract. Thus, the reverse charge under section 68(2) of the Finance Act, 1994, is made applicable to SBC.
The same has been clarified vide 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 Swachh Bharat Cess mutatis mutandis.
Calculation of SBC for services where abatement is allowed
Taxable services, on which service tax is leviable on a certain percentage of value of taxable service, will attract SBC on the same percentage of value as provided in the notification No. 26/2012-ST, dated 20th June, 2012. Accordingly, the same shall apply for the purpose of SBC as enumerated here-in-below for ease of reference:
|Taxable Service||Abatement%||Taxable%||Service Tax%||Swachh Bharat Cess%|
|Services in relation to financial leasing including hire purchase||90||10||1.40||0.05|
|Transport of goods by rail||70||30||4.20||0.15|
|Transport of passengers by rail||70||30||4.20||0.15|
|Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises||30||70||9.80||0.35|
|Transport of passengers by air
· Economy Class
· Other than Economy Class
|Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes.||40||60||8.40||0.30|
|Renting of any motor vehicle designed to carry passengers||60||40||5.60||0.20|
|Transport of goods in a vessel||70||30||4.20||0.15|
|Services by a tour operator in relation to,-
· a package tour
· any services other than specified at (i) and (ii) above.
|Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority||75||25||3.50||0.125|
|Residential properties having a carpet area above 2000 sq ft and where amount charged is equal to or more than Rs. 1 crore
Is CENVAT Credit of the SBC is available
No. SBC is not integrated in the Cenvat Credit chain. Now the basic question which puts many minds in dilemma is why it is not Cenvatable when the relevant extracts of Section 199(2) states the same needs to be treated as service tax? The Cenvat Credit Rule 2004 allows the provider of output service to CENVAT credit of service tax leviable under section 66A and 66B of the Finance Act, 1994 & since the levy of SBC is designed under Section 119 of the Finance Act 2015, the CENVAT credit of SBC cannot be allowed.
Therefore, credit of SBC cannot be availed. Further, it would be relevant to note that SBC cannot be paid by utilizing credit of any other duty or tax.
Refund of Swachh Bharat Cess for Expoters
|Refund Under||Eligibility for Refund|
|Rule 5 of CCR r/w N.No 27/2012-CE(NT)||Not eligible|
|Notification No.39/2012-ST||Eligible as specifically grants rebate of Service Tax & Cess|
|Notification No. 41/2012-ST||Not eligible as grants rebate only of Service tax.|
Point of taxation for Swachh Bharat Cess
Point of Taxation Rules, 2011 contains several rules, but it needs to be seen which Rules there under gets triggered by this levy of Swachh Bharat Cess.
Rule 3 determines POT for tax payable under straight charge.
Rule 4 of POT does not get triggered in the instant case as Section 65B(50) defines “tax” to mean service tax leviable u/s 66B of the Act & since SBC is a cess levied u/s 119 of the Act and not a tax levied u/s 66B of the Act. Hence, levy of SBC does not amount to change in effective rate of tax.
Rule 5 of the Point of Taxation Rules would be applicable in this case since this levy has come for the first time on all services except those services which are in the Negative List or are wholly exempt from service tax. SBC, therefore, is a new levy, which was not in existence earlier. It has been endeavored to place the provisions in this regard in tabular for ease of reference:
|SBC Leviable or Not||Completion of Service||Invoice||Payment|
|SBC||On/after||After 14 days||Before|
|No SBC||On/after||Within 14 days||Before|
#Effective date in the above data is 15th November, 2015
#14th day is 29th November, 2015
Rule 7 determines POT in respect of Reverse Charge Mechanism (‘RCM’) on transactions with associated enterprise (service provider located outside India) and also on transactions with other parties.
RCM on transaction with associated enterprise:
|Date of entry in books of account||Invoice date||Payment date||POT||SBC Levied or not|
|10th Nov 2015||15th Nov 2015||30th Nov 2015||10th Nov 2015||No SBC|
|15th Nov 2015||6th Oct 2015||30th Nov 2015||15th Nov 2015||SBC|
|15th Nov 2015||15th Nov 2015||10th Nov 2015||10th Nov 2015||No SBC|
RCM on transaction with other parties:
|Invoice date||Payment date||POT||SBC levied or not|
|10TH Sep 2015||10th Nov 2015||10th Nov 2015||No SBC|
|10TH Sep 2015||15TH Nov 2015||15TH Nov 2015||SBC|
|10TH Sep 2015||25TH Dec 2015 payment is not made within 3 months||11th Dec 2015 The date immediately following end of 3 months||SBC|
Calculation of Service Tax and SBC on services covered under Rule 2A, 2B or 2C of Service Tax (Determination of Value) Rules, 2006
The tax (Service Tax and SBC) on services covered by Rule 2A, 2B or 2C of Service Tax (Determination of Value) Rules, 2006, would be computed by multiplying the value determined in accordance with these respective rules with [14% + 0.5%] which is displayed here-in-below for the ease of reference:
|Valuation rule||Taxable Value %||Service Tax %||SBC|
|Original Works Contract – Rule 2A(ii)(A)||40||5.60||0.20|
|Other contracts – Rule 2A(ii)(B)||70||9.80||0.35|
|Money changing – Rule 2B||Specified Value||14% of specified value||0.5% of specified value|
|Restaurant – Rule 2C||40||5.60||0.20|
|Outdoor Catering –Rule 2C||60||8.40||0.30|
Is SBC applicable on services covered by Rule 6 of Service Tax Rules i.e. air travel agent, life insurance premium, purchase and sale of foreign currency and services by lottery distributors/selling agents
A new Sub-rule (7D) to rule 6 has been inserted vide notification 25/2015-Service Tax, dated 12th November, 2015 so as to provide that the 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%. In this regard, it would be relevant to note that 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.
Is a person providing both exempted and taxable service and reversing credit @ 7% of value of exempted service under Rule 6 of Cenvat Credit Rules, does he need to reverse the SBC also
NO. Reversal of SBC is not required under Rule 6 of Cenvat Credit Rules, 2004 as SBC is not integrated in the Cenvat Credit chain.
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