Tuesday, 17 November 2015

Decoding Swachh Bharat Cess

Background: 

Chapter VI (Section 119) of the Finance Act 2015 contains provisions for levy and collection of Swachh Bharat Cess (SBC). Now the Government has announced 15th November, 2015 as the date from which the provisions of Section 119 would come into effect (notification No.21/2015-Service Tax, dated 6th November, 2015 refers). Simultaneously, Government has also notified levy of Swachh Bharat Cess at the rate of 0.5% on all taxable services. Effectively, the rate of SBC would be 0.5% and new rate of service tax plus SBC would be 14.5%. As such SBC translates into a tax of 50 paisa only on every one hundred rupees worth of taxable services. The proceeds from this cess will be exclusively used for Swachh Bharat initiatives. 

In this context, the relevant Chapter of the Finance Act, 2015 is reproduced below:-

pter of the Finance Act, 2015 is reproduced below:- “CHAPTER VI 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.” 


On this issue, Hon’ble FM in his speech for Budget 2015-16 has stated as under:- “10. The third is ‘Swachh Bharat’ which we have been able to transform into a movement to regenerate India. I can speak of, for example, the 50 lakh toilets already 2 constructed in 2014-15, and I can also assure the Members of this august House that we will indeed attain the target of building six crore toilets. But, Madam, 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.”

“123. ----It is also proposed to have an enabling provision to levy Swachh Bharat Cess at a rate of 2% or less on all or certain services if need arises. This Cess will be effective from a date to be notified. Resources generated from this cess will be utilised for financing and promoting initiatives towards Swachh Bharat.”

Effective Date & Rate
The Government issued Notification No. 21/2015-Service Tax, as per which the aforesaid levy comes into force from 15th November, 2015.  By another Notification No. 22/2015-Service Tax, the effective rate of Swatch Bharat Cess, has been notified  @ 0.5% of Taxable Value.
Abatement & Reverse Charge
The Government has further amended the Notification No.  26/2012-Service Tax, by Notification No. 23/2015- Service Tax to provide that the Swatch Bharat Cess, will also be levied on the abated value, as Notified, subject to the conditions specified in the conditions specified.   The reverse charge mechanism  as Notified by Notification No. 30/2012-Service Tax has also been extended to Swatch Bharat Cess, vide Notification No. 24/215-Service Tax.
Optional Scheme for Travel Agents, Insurer etc.
Under Rule 7, 7A, 7B and 7C of the Service Tax Rules, 1994, an optional scheme to Travel Agents, Insurers,  Money Changers and Selling Agents of Lotteries is prescribed.  As per the said scheme, such persons have option to pay Service Tax  computed on their gross receipt, instead of value of their taxable services.  The said scheme has also been extended for the purpose of Swatch Bharat Cess vide Notification No. 25/2015-Service Tax.  The Swatch Bharat Cess payable will be computed by dividing the Service Tax under the said composition scheme by Twenty Eight.  For Example, if a travel agent, under the  said optional scheme was liable to pay Service Tax of Rs. 5400/- He will also be liable to pay Swatch Bharat Cess  amounting to Rs. 200/-
Point of Taxation
It is a new levy, which was not in existence earlier. Rule 5 of Point of Taxation Rules would be applicable in this case. Therefore, in case where payment has been received and invoice is raised before the service becomes taxable, i.e., prior to 15th November, 2015, there is no lability of Swachh Bharat Cess. In case payment has been received before the service became taxable and invoice is raised within 14 days, i.e. upto 29th November, 2015, even then the service tax liability does not arise. Swachh Bharat Cess will be payable on services which are provided on or after 15th Nov, 2015, invoice in respect of which is issued on or after that date and payment is also received on or after that date. Swachh Bharat Cess will also be payable where service is provided on or after 15th Nov, 2015 but payment is received prior to that date and invoice in respect of such service is not issued by 29th Nov, 2015.
CENVAT Credit.
The CBEC has released FAQ on Swatch Bharat Cess, which are available on the website of CBEC.  As per the said FAQ’s, as the Swatch Bharat Cess is not integrated in CENVAT Credit Scheme, hence neither its credit is available not it can be paid by utilizing CENVAT Credit.  With due regards, the clarification issued by the Board is not in confirmation of the Law laid down by Parliament.  The Provisions of Chapter V of the Finance Act, 1994 and the rules made there under applies to the Swatch Bharat Cess also.  The CENVAT Credit Rules, 2004 are notified under Section 94 of the Finance Act, 1994,  and there for the provisions contained in the said rules, are also applicable to Swatch Bharat Cess.  


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