Swachh Bharat Cess – Levy, Collection & Point of Taxation

Swachh Bharat Cess – Levy, Collection & Point of Taxation, The Swach Bharat Mission (SBM) was initiated and officially launched by the government of India on 2nd Oct, 2014 by the Hon’ble Prime Minister with an aim to accomplish the vision of ‘Clean India’. Th e campaign covers approximately 4,041 statutory cities and towns to clean the roads, streets, localities and infrastructure of the nation. The Swachh Bharat Mission requires an investment of `62,009 crores (US$ 9.4 billion approx.), out of which `14,623 crores (i.e.; US$ 2.2 billion approx..) shall be made available by the Central government. With a view to meet the funding requirements for the said Mission, the government has planned to raise funds by imposing the Swach Bharat Cess(SBC) on Service Tax apart from the other sources.

Swachh Bharat Cess – Levy, Collection & Point Of Taxation

Levy And Collection of the SBC On Service Tax

Th e provisions related to the levy, imposition and collection of SBC are contained in the Chapter VI (Section 119) of the Finance Act, 2015. Th e SBC shall be levied on all taxable services at the rate not exceeding 2% of the value of taxable services.

The Hon’ble Finance Minister, while informing the House of Parliament on the matter, stated as under:

“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. Th is cess will be effective from a date to be notified. Resources generated from this cess will be utilized for financing and promoting initiatives towards Swachh Bharat.”

Th us, the provisions of Section 119 shall come into force w.e.f. 15th Nov, 2015 as declared by the government of India vide Notification No. 21/2015 and the SBC shall be imposed from the said date at the rate of 0.5% on all taxable services.

As regards collection, the funds raised through SBC shall first be credited to Th e Consolidated Fund of India and thereafter, the Central Government may, utilize such funds for the purposes as specified under sub – section 2, after the Parliament makes due appropriation of the funds.

Th us, the funds raised through the imposition of SBC shall be utilized wholly and exclusively for financing and promoting the Swachh Bharat Initiatives or any matter relating thereto

Determination Of Point Of Taxation

Th e Point of Taxation of SBC shall be determined in accordance with Rule – 5 of the Point of Taxation Rules, 2011.

As per Rule 5, SBC shall not be levied in the following cases if service is performed after 15th Nov, 2015:

• Where the invoice is issued as well as consideration is received before the date when SBC became effective, i.e.; before 15th Nov, 2015; and,
• Where the consideration is received before the date when SBC became effective, i.e.; before 15th Nov, 2015 and the invoice is issued on or before 29th Nov, 2015 (i.e.; within 14 days of the date when SBC became effective).

However, this is contrary to provisions of section 67A which states that rate of service tax, value of a taxable service and rate of exchange will be the one as in force or as applicable at the time when the taxable service has been provided or agreed to be provided.

Countering Some Basic Issues Involved

Separate indication in invoice:

SBC needs to be mentioned separately in the invoice as a different line item after Service Tax. It is to be noted that SBC shall be levied, imposed and collected independent of the Service Tax. Thus, it has to be levied, treated and accounted for separately. In fact, separate accounting code has been notified as under:

Swachh Bharat Cess (Minor Head)	Tax Collection	Other Receipts	Penalties	Deduct Refunds
0044-00-506	00441493	00441494	00441496	00441495

Class of services on which SBC is to be levied: SBC may be levied on all or any of the services as notified by the Central Government. Th e Central Government vide Notification No. 21/2015 has imposed SBC on all taxable services.

Date of levy and the value on which it is to be levied: SBC is to be levied at a rate of 0.5% on the value of taxable services. Here, it is to be noted that unlike the other cess in existence, that is to say, the Education Cess and the Secondary and Higher Education Cess, SBC is not to be imposed on the amount of tax liability. Rather, it is to be imposed directly on the value of taxable services

SBC in case of Exempt Services

As discussed earlier, the SBC is to be levied on all taxable services. Th us, the exempt services fall outside the periphery of the imposition of SBC. Th us, any service which is covered in the Mega Exemption Notification or falls under any category of the Negative List shall not be subject to SBC as these services are not taxable.

• SBC in case of Abatement: Abatement implies the exemption of a certain percentage of the value of taxable services. Th us, in case of abatement, SBC shall be applicable and be levied only on that portion of the service which is taxable and no cess in the name of SBC shall be levied or imposed on that part of service which has been exempt owing to the provision of abatement made effective by the government vide Notification No. 26/2012- Service Tax, dated June 20, 2012.
• Applicability of SBC in case of services covered under Rule 6 of Service Tax Rules, 1994: A new sub – rule, i.e.; Sub – Rule 7D has been inserted to Rule 6 vide Notification No. 25/2012 – Service Tax, dated 12th Nov, 2015 to provide for the imposition of SBC on the services covered under Sub- Rules 7, 7A, 7B or 7C by applying the following formula:
• Service Tax Liability (calculated as per sub – rule 7, 7A, 7B, 7C)*0.5%/14%
• SBC in case of restaurant services and catering services: SBC would be applicable on the same portion of service as the Service Tax, i.e.; 40% and 60% in case of the restaurant services and the catering services respectively.

SBC and Reverse Charge Mechanism

In certain cases, the liability to pay Service Tax has been shifted onto the recipient of service 0rather than the service provider. Such an arrangement is referred to as the Reverse Charge Mechanism. Th e arrangement of Reverse Charge Mechanism was made effective vide Notification No. 30/2012 – Service Tax dated 20th June, 2012. Th e Central Government, vide Notifi cation No. 24/2015 – ST, dated 12th Nov, 2015 clarified that the Notification No.30/2012 – Service Tax dated 20th June, 2012 would be effective for the purposes of levy of SBC mutatis mutandis.

In case of Reverse Charge Mechanism, the Point of Taxation of SBC shall also be determined in accordance with Rule 7of the Point of Taxation Rules, 2011 as is applicable in case of determining the Point of Taxation of Service Tax under Reverse Charge Mechanism.

SBC and CENVAT Credit

It is noteworthy to mention that SBC has not been included in the chain of CENVAT Credit. Th us, CENVAT Credit can neither be booked nor availed in respect of SBC. In cases where any reversal is needed to be provided in respect of any amount of CENVAT Credit booked earlier, no reversal would be required to be made in respect of the amount of SBC as no credit is booked in the fi rst instance.

CONCLUSION

Hence, in light of the above discussion, we can conclude that SBC would raise a substantial amount of funds for the Government of India (estimated at `10,000 crores per annum) to meet the huge funding requirements of the SBM apart from the other sources. SBC would help to foster the implementation of the Swachh Bharat Mission which would further pave way to accomplishing the objective of ‘Clean India’. However, at the same time, it would also increase the tax burden. Due to the non – availability of CENVAT Credit, it will result in cascading eff ect of the cess. A direct enhancement of the eff ective rate of Service Tax would also result in hike in prices of export goods, thus not facilitating to making export goods competitive in the international markets which is contrary to the ‘Make in India’ initiative of the government of India. Th e need for separate accounting treatment would cause inconvenience and complexity. Hence, there are a few points which still need consideration