What is SWACHH BHARAT CESS (“SBC”)?

The government of India wide Notification has made levy and collection of “Swachh Bharat Cess” (SBC) mandatory from the 15th November 2015. The following are a few questions and answers in relation to SBC, which will possibly cover all the aspects associated directly or indirectly with levy, collection and payment of SBC.

Coverage of Services

Will SBC apply on all services?

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.

 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?

Service Provider, the cess is to be collected and paid by any service provider, who is presently collecting and paying Service Tax and 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.

 Rate

What is the rate of SBC?

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

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

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.

 Value

On what value, SBC would be applied?

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

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.

Effect on Ongoing Services

How will ongoing services be effected?

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:

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

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)

Effect on Abatement Notification – 26/2012

In case of services covered by abatement, what would be effective rate of tax?

Section 119 provides that SBC would be levied and collected as service tax. Further, it provides that provision of Chapter V of the Finance Act, 1994 would apply to SBC as they apply to service tax. The abatement notification is issued under Section 93 of Chapter V of the Finance Act, 1994. Thus, Abatement Notification – 26/2012 would apply for SBC also in the same manner as apply for service tax.

Hence, the effective rate of tax on all Abatement Services would be [14.5% * Effective Rate under Abatement Notification - 26/2012]. For example, the effective rate of tax on GTA service would be [14.5%*30%] = 4.35% (and NOT 4.2%).

It is important to note that the same would be treated as Change in Effective Rate of Tax

Effect on Special Valuation Rules – Rule 2A / Rule 2C of Service Tax (Determination of Value) Rules, 2006

In case of services covered by special valuation provision (Works Contract Service and Restaurant / Outdoor Catering Service) what would be effective rate of tax?

Tax needs to be applied on the value so arrived at the rate of 14.5%. Hence, the effective rate of tax on such services covered by special valuation provision would be [14.5% * Effective Rate under such Special Valuation Provision]. For example, the effective rate of tax in case of original works would be [14.5% * 40%] = 5.8% (and NOT 5.6%) and other than original works would be [14.5% * 70%] = 10.15% (and NOT 9.8%).

It is important to note that the same would be treated as Change in Effective Rate of Tax

 Effect on Composition Schemes – Rule 6(7) / Rule 6(7A) / Rule 6(7B) and Rule 6(7B) of Service Tax Rules, 1994

Whether SBC would be applicable on services covered by Rule 6 of Service Tax Rules (i.e. Air Travel Agent Service, Life Insurance Premium Service, Money Changing Service and Promotion of Lottery Tickets Service)?

SBC will NOT be applicable on such services as special rates are given for such services. The writer expects that consequential amendments under the aforesaid rules may come to increase these special rates correspondingly. As of now, the old special rates will continue till any further notification amending these special rates.

Invoice, Books of Accounts and Accounting Code

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

SBC (just like EC & SHEC) would be levied, collected and paid to the Central Government independent of service tax. SBC has to be mentioned separately in Invoice and separately accounting in Books of Accounts as it is being collected for a particular purpose (i.e. Swachh Bharat Abhiyan) and the entire fund collected from the same would be used only and only for the desired purpose.

SBC would be paid separately under a separate accounting code which would be notified very soon (possibly before November end as the next due-date of payment is 6th December 2015).

 Payment

What shall be date of payment of SBC?

The collection and levy of SBC shall be exactly like that of Service Tax. Even the provisions relating to interest, penalty, refunds and exemptions shall remain the same for SBC as is applicable to Service Tax.

Filing of Return

 How would be SBC reflected in the Service Tax Return?

The existing ST-3 Return for Service Tax would get altered to include provisions for SBC as well. This would be notified sometime later (possibly before 31st March 2016 as the next due-date of filing of return is 25th April 2016).

 Availing or Booking CENVAT Credit in relation to SBC paid on Input Service

Whether SBC paid on Input Service be eligible as CENVAT Credit?

CENVAT Credit on SBC paid on Input Service will NOT be available as there is no corresponding amendment in the CENVAT Credit Rules, 2004.

Using Eligible CENVAT Credit in relation to SBC payable on Output Service

Whether SBC payable on Output Service can be paid by using Eligible CENVAT Credit?

Eligible CENVAT Credit (for example Service Tax on Input Service) can be used for payment of SBC payable on Output Service in terms of CENVAT Credit Rules, 2004 (as SBC is also technically service tax only).

 SBC on Excise Duty

Whether SBC is levied and collected on Excise Duty also just like Service Tax?

SBC is levied ONLY ON SERVICE TAX. SBC will not be levied on Excise Duty. Thus, the rate of Excise Duty will remain as 12.5% whereas the rate of Service Tax will increase to 14.5%.

Note: Above Article is Contributed by Our Active Member Mr.Pravin Karn.