Dear Professional Colleague,
Clarifications on various aspects
of Swachh Bharat Cess
Recently, the Central Government vide
Notification No. 21/2015-ST and 22/2015-ST, both
dated November 6, 2015 had appointed November 15, 2015 as the date from
which, Swachh Bharat Cess
(“SB Cess”)at the rate of 0.5% on
value of all taxable services shall be applicable. However, a sudden imposition of SB Cess created lot of confusionslike
to calculate value of taxable
services under Abatement Notification, treatment
of SB Cess on ongoing transactions,
availability of Cenvat credit of
SB Cess, etc. Thus, the
Central Government has issued following Notifications in order to clarify certainaspects of applicability of SB Cess:
SB
Cess at the rate of 0.5% will be levied on value of all taxable services after availing
abatement – Notification No. 23/ 2015-ST dated November 12, 2015:
The Central Government has amended Notification
No. 22/2015-ST dated November 6, 2015,wherein an effective rate of 0.5%of the value
of all taxable services was fixedto clarify that SB Cess will be leviedon value
of taxable services afteravailing the benefit of abatements by way of an
exemption provided vide Abatement Notification No. 26/2012-ST dated June 20,
2012 i.e. SB Cess would be computed on abated value.
For example, in case of GTA
services, presently, abatement of 70% is available and accordingly, Service tax
is required to be paid on 30% of value of taxable service after exemption
(abatement) of 70% as provided under the said Abatement Notification. The
effective rate of Service taxincluding SB Cess would be 4.35% (i.e. 30% of
14.5%).
Value
of taxable services for the purposes of SB Cess shall be the value as
determined in accordance with the Service Tax (Determination of Value) Rules,
2006 – Notification No. 23/ 2015-ST dated November 12, 2015:
Notification No. 22/2015-ST dated
November 6, 2015 has been further amended to provide that value of taxable services
for the purposes of SB Cess shall be the value as determined in accordance with
the Service Tax (Determination of Value) Rules, 2006. Thus, SB Cess would be
levied in the following manner:
a.
Computation
of tax under Works contract:
In terms of Rule 2A of the Service Tax (Determination of Value) Rules, 2006, Service
tax along with SB Cess needs to be applied on taxable value. Accordingly,
effective rate of tax would be as under:
ü
In
case of original works: 5.8% (14.5%*40%); and
ü
Other
than original works: 10.15% (14.5%*70%)
b.
Computation
of tax on Restaurant and Outdoor catering services:In terms of Rule 2C of the Service Tax (Determination of
Value) Rules, 2006, Service tax along with SB Cess needs to be applied on taxable
value.. Accordingly, effective rate of tax would be as under:
ü
In
case of AC Restaurant services: 5.8% (14.5%*40%); and
ü
In
case of Outdoor catering services: 8.7% (14.5%*60%)
SB
Cess along with Service tax shall be paid on services under Reverse Charge Mechanism–
Notification No. 24/ 2015-ST dated November 12, 2015:
The Reverse Charge Notification No.
30/2012-ST dated June 20, 2012 prescribes the specified services under full
reverse charge wherein 100% service tax to be paid by the Service Recipient and
under partial reverse charge wherein both the Service provider and service
recipient has to pay specified percentage of Service tax.Now, the Central
Government vide Notification No. 24/ 2015-ST dated November 12, 2015, has
explicitly clarified that Service tax liability under Reverse charge/ partial
reverse charge shall be applicable for the purposes of SB Cess mutatis
mutandis.In other words, SB cess along with Service tax shall be paid on
taxable services under Reverse Charge Mechanism as well.
Amendment
made in Service Tax Rules, 1994 for providing alternate rate for SB Cess– Notification
No. 25/ 2015-ST dated November 12, 2015:
As per sub-rules 7,7A,7B and 7C to
Rule 6 of the Service Tax Rules, 1994, there is an alternative rate of Service
tax for services, namely, air travel agents, insurance premium, purchase &
sale of foreign currency and lottery.
Now, the Central Government has amendedService
Tax Rules, 1994 vide Notification No. 25/ 2015-ST dated November 12, 2015and
thereby, inserted sub-rule (7D) after (7C) under Rule 6 as under:
“(7D) The person liable for paying the service
tax under sub-rule (7), (7A), (7B) or (7C) of rule 6, shall have
the option to pay such amount as determined by multiplying total service tax
liability calculated under sub-rule (7), (7A), (7B) or (7C) of rule 6 by 0.5
and dividing the product by 14 (fourteen),during any calendar month or quarter,
as the case may be, towards the discharge of his liability for Swachh Bharat
Cess instead of paying Swachh Bharat Cess at the rate specified in
sub-section (2) of section 119 of the Finance Act, 2015 (20 of 2015) read with
notification No.22/2015-Service Tax, dated the 6th November, 2015,
published in the Gazette of India, Extraordinary, Part II, Section 3,
Sub-section (i) vide number G.S.R. 843 (E), dated the 6th November, 2015, and the
option under this sub-rule once exercised, shall apply uniformly in respect of
such services and shall not be changed during a financial year under any
circumstances."
In other words, if
Service tax is payable at an alternative rate, SB cess would also be computed
in proportion to such alternative rate in following manner:
Total Service tax liability calculated under Rule
6(7)(7A), (7B) or (7C) * 0.5
14
For example, in
case of air travel agent services, air travel agent opting alternative rate
optionis liable to pay Service tax at the rate of 0.7% of the basic fare in
case of domestic bookings. Therefore, SB Cess would be payable at the rate of
0.025% i.e. 0.5 multiplied by 0.7% divided by 14 on this service.
To access complete
Notifications, please click on the link below:
Point of Taxation
It is pertinent here
to note that the Finance Ministry in its Press Release dated November 12, 2015
has clarified that for determining event when the new levy i.e. SBCess will be
leviable ontaxable services, norms laid down in terms of Rule 5 of the Point of
Taxation Rules, 2011 would apply in the following manner:
(i) in case where
payment has been received and invoice is raised before the service becomes
taxable, i.e., prior to November 15, 2015, there is no liability of SB Cess.
(ii) In case
payment has been received before the service became taxable and invoice is raised
within 14 days from the date service is taxed first time, i.e. uptoNovember 29,
2015, even then the Service tax liability does not arise. In other words, SB
Cess will be payable where service is provided on or after November 15, 2015
but payment is received prior to that date and invoice in respect of such
service is not issued by November 29, 2015.
An illustrative
table to above clarification is given as under:
|
S. No.
|
Date of applicability of SB
Cess
|
Date of
Invoice
|
Date of
Payment Received
|
Applicability of
SB Cess
|
|
1.
|
15thNovember,
2015
|
25thNovember,
2015
|
1stNovember, 2015
|
No
|
|
2.
|
15th November,
2015
|
30th November,
2015
|
1st November,
2015
|
Yes
|
|
3.
|
15th November,
2015
|
1st November,
2015
|
1st November,
2015
|
No
|
|
4.
|
15th November,
2015
|
16th November,
2015
|
16th November,
2015
|
Yes
|
Our Comments: Under the Finance Act, Section 66B of the Finance
Act, 1994 is the charging Section which levy Service tax on taxable services.
We are reproducing herewith Section 66B of the Finance Act for the ease of
convenience:
“66B. Charge of service tax on and after Finance
Act, 2012.
There shall be levied a tax (hereinafter referred
to as the service tax) at the rate of twelve per cent. on the value of all services, other than those services specified in
the negative list, provided or agreed to be provided in the taxable territory
by one person to another and collected in such manner as may be prescribed.”
The literal
interpretation of the charging Section 66B of the Finance Act means that the
levy of Service tax is on the value ofall taxable services ‘provided or agreed
to be provided’. However, the collection of Service tax may be shifted to any
point/ stage/event, in any manner, as prescribed by the Rules made in this
behalf.
The Hon’ble Supreme Court in the case of All
India Federation of Tax Practitioners Vs. Union of India [2007-TIOL-149-SC-ST]
held that “a tax on a thing or goods can
only be with reference to a taxable event” and the same contention was
upheld again in the case of Association of Leasing & Financial
Service Companies Vs. Union of India [2010 (20) STR 417 (SC)], wherein
the Hon’ble Supreme Court observed that the taxable event under the Service tax law is the rendition of service.
In view of the above discussed provisions, the
matter is subjected to debate as to whether SB Cess would be leviable on a
service rendered prior to November 15, 2015 when SB Cess was not applicable at
the time of its rendition, merely because its payment is received on or after
the date of levy or the invoice is not issued within 14 days of the date of
levy.
Here it would not be out of place to mention
that POT Rules were framed by the Central Government in exercise of the powers
conferred under Section 94 of the Finance Act, 1994 and such delegated
legislation cannot be extended to go beyond the vires of the Finance Act, 1994.
FAQs released by CBEC on SB Cess
The Board has issued Frequently Asked Questions (FAQs) on SB Cess wherein
certain issues under SB Cess has been clarified like:
“Q.8 Whether separate accounting
code will be there for Swachh Bharat Cess?
Ans. Yes, for payment of Swachh Bharat Cess, a separate accounting code would
be notified shortly in consultation with the Principal Chief Controller of
Accounts. These are as follows:-
|
Swachh Bharat Cess
(Minor Head)
|
Tax
Collection
|
Other Receipts
|
Penalties
|
Deduct
Refunds
|
|
0044-00-506
|
00441493
|
00441494
|
00441496
|
00441495
|
Q.14 Whether Cenvat Credit of the
SBC is available?
Ans. SBC is not integrated in the Cenvat Credit Chain. Therefore, credit of SBC cannot
be availed. Further, SBC cannot be paid by utilizing credit of any other duty
or tax.”
To access complete FAQs, please click on the link below:
In order to access
our earlier article on SB Cess, please click on the link below:
Hope the information will assist you in your Professional
endeavours. In case of any query/ information, please do not hesitate to write
back to us.
Thanks & Best
Regards,
Bimal Jain
FCA, FCS, LLB, B.Com (Hons)
Author of a book on Goods and Services Tax, titled, "GOODS AND
SERVICES TAX – INTRODUCTION AND WAY FORWARD" (1st Edition)
A2Z TAXCORP LLP
Tax and Law Practitioners
Delhi:
Flat No. 34B, Ground Floor,
Pocket – 1, Mayur Vihar Phase-1
Delhi – 110091 (India)
Tel: +91 11 22757595/ 42427056
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Kolkata:
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Shyambazar, Kolkata – 700 004
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