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Swachh Bharat Cess Meaning, Applicability, Tax Rate & Details

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Today we are giving full details about Swachh Bharat Cess. Recently so many Accountant Professionals, CA IPCC Final Students, CMA CS Students are frequently asking following questions. What is the meaning of swachh bharat cess on service tax, How to do swachh bharat cess calculation, What is the swachh bharat cess effective date / applicability date swachh bharat cess, How swachh bharat cess effects on income tax, swachh bharat cess on which services like this… So Now we going to clarify all issues & analysis about Swachh Bharat Cess.

What is Swachh Bharat Cess

The thrust of Modi Government towards clean India has made the government to impose Swachh Bharat Cess. With the objective of financing and promoting Swachh Bharat initiatives, enabling provisions were made in the Finance Bill’ 2015 to empower the Central Government to impose a Swachh Bharat Cess on all or any of the taxable services at a rate of 2% of the value of such taxable services.

This Cess was to be levied from the date to be notified by the Central Government.

Owing to this requirement, the central government issued notifications 21/2015 &22/2015 – ST both dated 6th Nov’ 2015, for the purpose of chargeability of Swachh Bharat Cess w.e.f. 15th Nov’ 2015 on all the taxable services at the rate of 0.5%.

Applicability of Swachh Bharat Cess – Date & Tax Rates

POINTS TO BE NOTED

  1. This Cess (SBC) is applicable only on taxable services.
  2. This Cess is applicable w.e.f. 15.11.2015
  3. This cess is leviable on the value of services, thus, the effective rate of service tax would be 14.5% w.e.f. 15.11.2015.
  4. This cess will not be applicable on non taxable services including the exempted services.
  5. This cess is to be disclosed separately on the invoice and paid separately. (Accounting codes shall be notified soon).

Question 1: Coverage of Services

Will SBC apply on all services?

Answer:

SBC shall not be leviable on services which are

  • exempt from service tax by a notification, or
  • otherwise not leviable to service tax.

It implies that that SBC shall apply only on those services on which Service Tax applies.

Question 2: Coverage of Persons

Who is supposed to collect and pay this cess? Whether a service recipient is also liable to pay SBC if the service is falling under Reverse Charge mechanism?

Answer:

Service Provider

The cess is to be collected and paid by any service provider:

i. who is presently collecting and paying Service Tax and

ii. who may be required to collect Service Tax in the future (i.e. when the value of taxable services provided exceeds Rs. 10 Lakhs)

Service Recipient

SBC would be applicable on all taxable services. Hence, even if a service is falling under Reverse Charge mechanism, the service recipient is liable to pay SBC. Moreover, unlike service provider, service recipient cannot go for exemption of Rs. 10 Lakhs under Small Service Provider Exemption Notification – 33/2012.

Question 3: Rate of SBC

What is the rate of SBC?

Answer:

The government has issued two notifications on 6th November 2015 – one after the other.

i. Notification Number 21/2015: SBC shall be levied at the rate of 2% (as per Chapter VI of the Finance Act 2015)

ii. Notification Number 22/2015: SBC in excess of 0.5% is exempted.

Net effect is that SBC shall be levied and collected at 0.5% itself.

Question 4: On what value, SBC would be applied?

On what value, SBC would be applied?

Answer:

SBC is levied on the “Value of Taxable Services” and NOT on the “Service Tax” component unlike the general character of any CESS.

Example:

Chartered Accountant Service provided for Rs.1,00,000

Particulars Amount
Service Tax = 1,00,000x 14% Rs. 14,000
Swachh Bharath Cess = 1,00,000 x 0.5% Rs. 500
Total Tax Rs. 14,500

Hence, even though a “Cess”, SBC shall not apply on the Service tax amount. Instead it shall be applied on the Value of Taxable Service.

Question 5: Effect on Ongoing Services

How will ongoing services be effected?

Answer:

If the Person Liable to Pay Service Tax is Service Provider

The levy of SBC is considered as a change in effective rate of tax in terms of Point of Taxation Rules, 2011.

In the following situations there shall be no levy of SBC for a service provider:

i. If the service has already been provided as on 15th Nov. 2015: Either the bill should have been raised before 15th Nov. 2015or the payment should have been received before 15th Nov. 2015

ii. If the service has not been provided as on 15th Nov. 2015: Both the bill should have been raised and the payment should have been received before 15th Nov. 2015

In any other situation, there shall be levy of SBC along with Service Tax

The impact of introduction of SBC on different situations is as follows as per Rule 4 of Point of Taxation Rules, 2011 (the cut-off date being 15th November 2015):

Date of Completion of Service Date of Issuance of Invoice Date of Receipt of Payment Effective Rate of Service Tax
Before 15th Nov. 2015 After 15th Nov. 2015 After 15th Nov. 2015 14.5%
Before 15th Nov. 2015 Before 15th Nov. 2015 After 15th Nov. 2015 14%
Before 15th Nov. 2015 After 15th Nov. 2015 Before 15th Nov. 2015 14%
After 15th Nov. 2015 Before 15th Nov. 2015 After 15th Nov. 2015 14.5%
After 15th Nov. 2015 Before 15th Nov. 2015 Before 15th Nov. 2015 14%
After 15th Nov. 2015 After 15th Nov. 2015 Before 15th Nov. 2015 14.5%

If the Person Liable to Pay Service Tax is Service Recipient

In case of reverse charge services, point of taxation as per Rule 7 of Point of Taxation Rules, 2011 would be the date on which consideration is paid to service provider.

Hence, there would be no levy of SBC if the consideration is paid to the Service Provider before 15th Nov. 2015. However, if the consideration is paid to the Service Provider on or after 15th Nov. 2015, SBC would be levied along with Service Tax (irrespective of the fact whether the service is provided before 15th Nov. 2015)

ISSUES IN SWACHH BHARAT CESS (SBC)

We have made an attempt to discuss all the issues related to the imposition of Swachh Bharat Cess along with the suggestive course of action for the Board.

1. Whether the cenvat credit of this SBC can be claimed?

Rule 3(1) of Cenvat Credit Rules’ 2004, specifies the duties and taxes eligible for cenvat credit. At present SBC is not covered there.

Suggestive course of action

  1. Proper Notification must be issued if the cenvat credit of SBC is to be given.
  2. If Government does not want to allow, then proper clarification must be issued.

2. Whether this cess is to be paid in cash or can be paid by using cenvat credit?

Rule 3(4) of CCR’ 2004, speaks for the utilization of cenvat credit and states that the cenvat credit can be utilized for payment of service tax on any output services. Further Rule 3(7b) of CCR’ 2004 pose restrictions on utilization of cenvat credit.

Suggestive course of action

If cenvat credit of SBC is allowed, proper notification must be issued to pose restriction on its utilization towards this cess only.

If cenvat credit of SBC is not allowed, proper clarification must be issued in this respect.

3. Whether SBC is to be shown and discharged separately?

Cess has particular objective. Thus, SBC must have separate accounting codes for its payment.

Suggestive course of action

Separate accounting codes must be released via new Notification.

4. What would be the effective rate of tax in case of Partially exempted services i.e. abatement scheme under notification 26/2012?

The abatement scheme does not alter the value of taxable service but only alters the rate of service tax. Thus, in case of GTA services, wherein the abatement is 70%, for a service of Rs. 100, the service tax is to be payable at 4.2%.

Now the issues arise with respect to the applicability of SBC.

View-1

The SBC is applicable on the value of taxable service and not on the service tax. Thus, the effective rate will be 4.7% (i.e. 4.2% + 0.5%)

View-2

As per the latest Notification 23/2015 –ST Dated 12th Nov’ 2015, Swachh Bharat Cess shall be leviable only on the specified percentage of taxable value. Thus, view-2 stands accepted in favour of assessees and if we take the example of GTA service then the effective tax rate would be 4.35% (i.e. 14.5% x 30%).

It is further clarified that the SBC on the services covered under Service Tax Valuation Rules’ 2006 shall be only on the taxable value. The effective rate would be as follows:-

Services Effective Rate
Works Contract Services 5.8% / 10.15%
Money Changing 0.145%
Restaurant & Outdoor Catering 5.8% / 8.7%

 

As per Notification No. 22/2015-Service Tax, dated 6th Nov’ 2015, issued in respect of SBC, Swachh Bharat Cess shall not be leviable on services which are exempt from service tax by a notification issued under sub-section (1) of section 93 of the Finance Act, 1994. Relevant para is as follows:-

“Provided that Swachh Bharat Cess shall not be leviable on services which are exempt from service tax by a notification issued under sub-section (1) of section 93 of the Finance Act, 1994 or otherwise not leviable to service tax under section 66B of the Finance Act, 1994.”

In this respect it is mentioned that Notification 26/2012, which specifies the partial exemption or the abatement scheme is issued in exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994. Thus, the proviso issued in the new notification for the non applicability of the SBC on the exempted services shall apply to the partial exempted services also and the effective rate would be 4.35% (i.e. 14.5% x 30%)

Furthermore, to give more weight-age to the present viewpoint, Section 119 of Finance Act’ 2015, issued for the purpose of levy and collection of SBC also needs to be noted:-

Relevant Para is as follows:-

“(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.”

Thus any exemption (Can be Full or Partial) given in service tax laws shall be applicable for SBC.

Hence, effective tax rate under this viewpoint would be 4.35% (i.e. 14.5% x 30%).

Suggestive course of action

Proper clarification must be issued.

5. What would be the effective rate of tax in case of services covered under Special Manner of Payment?

Rule 6 of Service Tax Rules’ 1994, covers four services under special manner namely

  • Services of Air travel agent,
  • Services of Life Insurer,
  • Services of Money Changer &
  • Services of Lottery Agent.

In these services, value of taxable service is not determined but the service tax is paid in a special manner. For ex:- Air travel Agent is required to service tax pay at 0.7% on Basic Fare value.

Now after the introduction of SBC, whether the effective rate would be 0.7% + 0.5% = 1.2% or it is 0.7% only (i.e. the consolidated rate)

Issues:-

(i) SBC cannot be applicable on the basic fare as it is not the value of taxable service. Value is determined only by Section 67 of FA’ 1994 read with Service Tax Valuation Rules’ 2006.

(ii) When an assessee opts for the special manner of payment, how can he calculate the value of taxable services only for the purpose of payment of SBC.

(iii) When there is no mechanism for value can the present rate of 0.7% be considered as the consolidated rate including the SBC

Suggestive course of action

  1. Proper clarification must be issued.
  2. Proper Notification must be issued to determine the value on notional basis. (Presently this is determined under Explanation 1 to Rule 6 of CCR’ 2004, for the purpose of reversal of cenvat credit)

6. What would be the relevant date for taking the effective rate of tax? Whether it is the provision of service or the issuance of invoice or the receipt of payment?

OR

Applicability of Swachh Bharat Cess on Ongoing Contracts?

Rule 5B was inserted in Service Tax Rules, 1994 which dealt with “Date for Determination of Rate of Service Tax”. Rule 5B is extracted below:

“5B. Date for determination of rate —–

The rate of tax in case of services provided, or to be provided, shall be the rate prevailing at the time when the services are deemed to have been provided under this rules made in this regard.”

Thus, Rule 5B gives the reference to POT Rules’ 2011 for determining the date for taking rate of service tax. Any date prescribed by the POT Rules’ 2011 is taken for the rate of service tax.

However, Rule 5B was omitted with effect from 01.07.2012. With effect from 28.05.2012 a new Section 67A was introduced in Finance Act, 1994. The title of section 67A stated as “Date of determination of rate of tax, value of taxable service and rate of exchange”. Section 67A is reproduced below:

“The rate of service tax, value of a taxable service and rate of exchange, if any,

  • Shall be the rate of service tax or value of a taxable service or rate of exchange, as the case may be,
  • In force or as applicable at the time when the taxable service has been provided or agreed to be provided.”

The present section specifies the date of actual provision of service as the relevant date for rate of service tax. It does not make any reference to the deemed provision of service.

Thus, for SBC whether Section 67A of FA’ 1994 needs to be followed or Rule 5 or Rule 4 of POT needs to be followed.

 

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