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All about Swachchh Bharat Cess

 

All about Swachchh Bharat Cess

All about Swachchh Bharat Cess

SWACHH BHARAT CESS

 

Swachh Bharat Cess to be collected at the rate of 0.5% of the value of taxable services from 15 November 2015.

The Central Government vide Notification No. 21/2015-ST and Notification No. 22/2015-ST has made the Swach Bharat Cess (‘herinafter referred to as ‘SBC’)  applicable on all taxable services from 15 November 2015 at the rate of 0.5% on value of taxable services.  

 

Comments:

As the SBC is newly introduced, we envisage that the readers will have a series of questions/doubts in respect of this new levy. We have therefore summarized the questions that can arise and have provided suitable reply/solution to the same:

Q 1: Is Swachh Bharat Cess applicable on all taxable services?

 

Ans.: Yes, SBC is applicable on all taxable services except for the services which are covered under Negative List of Services or which are Exempt from Service Tax.

Q 2: Is Swachh Bharat Cess applicable on the value of taxable service or is applicable on the service tax charged on the value of taxable services?

 

Ans.: SBC is applicable on the value of taxable services. Hence generally the effective tax rate would be 14.5%.

Illustrations:

Sr. No.ParticularsAmount (INR)
AValue of services100
B

Add: Service Tax @ 14%

(14% on A)

14
CAdd: Swachh Bharat cess @ 0.5%

(0.5% on A)0.5DTotal Invoice Value114.5

Q 3: Whether SBC is to be collected on all the invoices raised from 15 November 2015?

 

Ans.: All the provisions applicable to service tax will be applicable to SBC. Therefore, the applicability of SBC will be governed by Point of Taxation Rules, 2011 (‘PoT Rules’). The relevant Rule 4 of PoT Rules and its implications for determining the rate of tax on the taxable services provided are summarized in the below table:

Sr. No.Status of ServiceInvoice RaisedPayments ReceivedWhether Swachh Bharat Cess applicable

Effective rate of tax1Service provided before the change in rate of tax (i.e. prior to 15 November 2015)AfterAfterYes14.5%2BeforeAfterNo14%3AfterBeforeNo14%4Service provided after the change in rate of tax (From 15 November 2015)BeforeAfterYes14.5%5BeforeBeforeNo14%6AfterBeforeYes14.5%

Q 4: Whether Swachh Bharat Cess (SBC) is to be collected separately or should it be collected along with Service Tax?

 

Ans.: SBC is a separate levy in addition to service tax therefore SBC shall be collected separately.

Q 5 : Whether Swachh Bharat Cess can be paid by utilizing the CENVAT credit of Service tax or any other taxes/cess ? Also, can the CENVAT credit be availed of the Swachh Bharat Cess paid on the input services received?

 

Ans.: There have been no amendment to the CENVAT Credit Rules,2004. However the enabling provision incorporated in Finance Act 2015 has stated that the provisions of Chapter V of Finance Act,1994 and the rules made thereunder shall apply as they apply in levy and collection of tax on taxable services. Therefore further clarification is expected on the same.

However, till the time further clarity is provided by the Government on the issue, the output SBC should not be paid by utilizing the CENVAT credit and the same should be paid in cash. Also as no provisions have been introduced for availing and utilizing the CENVAT Credit of the SBC paid on the input services. Hence for the time being CENVAT Credit of SBC paid to the vendors may not be availed as credit. However, this position needs to be revisited once some clarity is provided by the Government.

Q 6: Whether Swachh Bharat Cess is also to be paid in case of reverse charge mechanism/ joint charge mechanism? If yes, how should the effective rate of tax be calculated?

 

Ans.: Yes, SBC will also be applicable in case of services liable under reverse charge mechanism/joint charge mechanism. The effective rate would be applicable in terms of Rule 7 of the Point of Taxation Rules, 2011.

Sr. No.

Nature of Service covered under Reverse Charge

Date of Payment of Invoice /Advance Payment

Date of Accrual of Invoice

Rate of Tax

1

Import of Services from Associated Enterprises

Prior to 15 November 2015

On or after 15 November 2015

14%

2

Prior to 15 November 2015

Prior to 15 November 2015

14%

3

On or After 15 November 2015

On or After 15 November 2015

14.5%

4

On or After 15 November 2015

Prior to 15 November 2015

14%

5

Other Services covered under reverse charge mechanism (payment made within a period of 3 months from the date of invoice)

Prior to 15 November 2015

N.A.

14%

6

On or After 15 November 2015

N.A.

14.5%

7

Other Services covered under reverse charge (payment made beyond the period of 3 months from the date of invoice and invoice is dated before 15 August 2015)

N.A.

N.A.

14%

8

Other Services covered under reverse charge (payment made beyond the period of 3 months from the date of invoice and invoice is dated on or after 15 August 2015)

N.A.

N.A.

14.5%

 

 

FEW FAQs

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.  Introduction of the cess was seen as precursor to introduction of GST where rate of tax is expected to be substantially higher than current rate of service tax.

The government has issued notification no. 21/2015 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 team has attempted to discuss in FAQ form. These are some basic questions in addition to many which may arise.

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%.

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. This notification would apply for SBC also in the same manner as applicable for service tax. The effective rate of tax would be 14.5% * effective rate under Notification 26/2012-ST. For GTA, it would be 14.5%*30%= 4.35% (not 4.70%)

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.

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

SBC would be levied, 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.

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 Notification No. 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.

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. On the other hand, SBC would be applicable as two (raising of invoice and receipt of consideration) of three events are occurring post 15.11.2015, if one follows Point of Taxation Rules, 2011.

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 there would no cascading effect of taxes and full credit would be allowed?) One can expect that suitable amendment is brought in Cenvat Credit Rules, 2004 to provide for availment and utilisation of SBC.

Tax payers should actively seek that the allowability of credit is made clear.

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. Till then it is advisable to pay that.  

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.

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.

I am executing ongoing contracts where billing is done in end or date after the date of SBC imposition- what can I do?

One could estimate the value of the service already provided and raise a bill for service provided till 14.11.2015. As service is provided and bill raised, the rate would be only 14%. This would also avoid any issues with the revenue. If not possible intimate the revenue on the work completed and the decisions where rendition of service has been held to be required for imposition of ST and then at the time of billing bifurcate between the service provided prior to and after 15.11.2015.

Conclusion

In the certainty of law remains the safety of the citizens. Too many changes lead to unintended mistakes which are then leading to unnecessary demands and costs.

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.

It appears that the movement to mop up taxes in bits and pieces at different times along with the delayed and diluted of the GST in its pristine form does not indicate that the executive would allow the real “ease of doing business” to happen.

All about Swachchh Bharat Cess

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