Dr. Sanjiv Agarwal, FCA, FCS
When Finance Act, 2015 was enacted, rate of Service Tax was enhanced from 12% to 14% and both education cesses subsumed in the enhanced rate of Service Tax. Alongwith, a new cess called Swachh Bharat Cess (SBC) was legislated but its levy was deferred due to political reasons.
Finance Act, 2015 amended section 66B so as to increase the Service Tax from 12 to 14 per cent. Further, Clauses 179 and 187 respectively of the Finance Bill, 2015 provide that-
(i) Section 95 of the Finance Act, 2004 levying education cess, and
(ii) Section 140 of the Finance Act, 2007 levying SHE cess
shall cease to have effect from a notified date after enactment of Finance Act, 2015. i.e. 1-6-2015.
With focus on clean India, Finance Act, 2015 has introduced a special cess called ‘Swachh Bharat Cess’ (SBC) over and above Service Tax. This SBC shall be used to finance and promote swachh bharat initiatives. According to the Budget speech, ‘swachh bharat’ has been transformed into a movement to regenerate India. It is proposed to build six crore toilets out of which 50 lakh have already been attained. Swachh Bharat is not only a programme of hygiene and cleanliness but, at a deeper level, a programme for preventive health care and building awareness.
The date from which this amendment would come into effect was to be notified in due course.
SALIENT FEATURES OF SWACHH BHARAT CESS – A SNAPSHOT
• A cess over & above Service Tax
• Introduced by Finance Act, 2015 w.e.f. 15 November, 2015
• Levied @ 2 percent but net rate of SBC after exemption is 0.50 percent
• Levied @ 0.50 percent on value of taxable service, not on Service Tax amount
• SBC to be charged on abated value where abatements are allowed.
• SBC to be levied on all taxable services.
• SBC to be charged separately in the invoice / bill
• Separate accounting code of SBC notified
• SBC to be paid like Service Tax by way of challan under specified code
• SBC to be paid in cash only, cannot be paid by utilizing cenvat credit
• No Cenvat credit can be taken for SBC paid
• Thus, SBC neither cenvatable nor cenvat to be used for paying SBC
• Everybody contributes for SBC irrespective of small or big service provider
• SBC not payable on exempt services or services under negative list
• SBC also payable on Service Tax liability under reverse charge
According to the statutory provisions, it can be inferred that –
(i) Though the levy is called cess, it shall be in the nature of tax (service tax) and collected as such.
(ii) SBC shall be levied on all on any of the taxable services.
(iii) It shall be collected for the purposes of Union and no component thereof may devolve on the states.
(iv) The proceeds of SBC collected will be credited to Consolidated Fund of India and will be subject to due appropriation by Parliament as per law. After such appropriation, Central Government shall utilize the same for specified purposes of swachh bharat initiatives.
(v) The purpose of SBC shall be for financing and promoting swachh bharat initiatives and any other purpose in relation thereto.
(x) SBC shall be in addition to Service Tax or any other cess on taxable services under Finance Act, 1994 or any other law implying that SBC will not be a substitute or alternate to any other cess.
(xi) SBC is a cess but will be levied and collected as Service Tax and all provisions of Service Tax shall apply.
(xii) An accounting code will be notified for SBC to effect payment of SBC and shall be payable on a monthly / quarterly basis as is with Service Tax.
(xiii)The provisions of chapter V of Finance Act, 1994 and rules made thereunder shall apply to SBC also. Thus, provisions and rules for exemptions, refunds, interest, penalty etc shall apply to SBC also. For example, if a service is exempt from levy of Service Tax, SBC shall also be exempt.
Effective Date for Levy of SBC
Central Government has notified levy of SBC w.e.f. 15th November, 2015 vide Notification No. 21/2015-ST dated 06.11.2015. Since the law requires levy of Service Tax @ two percent of value of taxable services, an exemption notification has also been issued (Notification No. 22/2015-ST dated 06.11.2015) whereby SBC of over 0.5 percent shall be exempt implying that SBC shall be effectively levied@ 0.05 percent (half percent only) on value of taxable services.
Effective Rate of Service Tax
This would effectively mean that Service Tax burden w.e.f. 15th November 2015 is going to be 14.5 percent (not 14 percent) and that this additional 0.5 percent is neither going to be cenvatable nor can be paid by using the accumulated Cenvat credit.
The effective rate of Service Tax including Swachh Bharat Cess would be 14.50 percent. Thus, for every rupees 100 of value of services, 50 paisa more will have to be shelved out. This impact will be on all taxable services and services in negative list / exempted services will not be impacted. The impact is going to be wider as it will be applicable on services under reverse charge also. Though it is not an another tax but the Government feels that it is a step towards involving each and every citizen to make contribution to Swachh Bharat drive.
The Service Tax collection target for the current fiscal is Rs. 2,09,774 crore @ 14% w.e.f. 1st June 2015 and @ 12 percent prior to that date. With about 135 days available to collect Swachh Bharat Cess, it is expected that Government may collect about Rs. 500 crore on account of SBC in the time available.
The following accounting codes have been notified for SBC –
|Swachh Bharat Cess
|Tax Collection||Other Receipts||Penalties||Deduct Refunds|
It appears that Government was waiting for Bihar elections to conclude so that this levy could be pressed into for collection of SBC. In fact, Government has lost revenue collection in the form of SBC as had it been collected from 1st June 2015, it could have collected over Rs. 700 crore by now in last over five months.