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%.
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).
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 proper notification must be issued to pose restriction on its utilization towards this cess only.cenvat credit of SBC is allowed,
If , proper clarification must be issued in this respect. Cenvat credit of SBC is not allowed
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 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 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%)respect it is mentioned that Notification 26/2012,
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.
Suggestive course of action
Proper clarification must be issued.
Warm Regards
CA Raman Singla
Partner - Indirect Tax Professionals
Author - Simplified Approach to - SERVICE TAX
Devalya Advisory LLP
Web: www.indirecttaxprofessionals,com
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