Diwali Bonus Swachh Bharat Cess

In Finance Act, 2015 new “chapter VI” has been added for introduction of levy and collection of “Swachh Bharat Cess” (SBC). Now on 06th November 2015, Notification 21/2015-Service Tax has been issued to notify the date for imposition of SBC as 15th November 2015. Therefore, new levy of SBC will be leviable on services from 15th November 2015.

1.Services liable for the payment of SBC & its percentage

As per sub section (2) of section 119 SBC was to be imposed on all or on any of the selected nature of services at the rate of 2% on the value of taxable services. The relevant sub section (2) of chapter VI ofFinance Act, 2015 reads as under.

“(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 seervices at the rate of two per cent on the value of such serevices for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.”

Board has issued another notification 22/2015-Service Tax dated 06th November 2015 to clarify this aspect. As per the notification SBC is leviable on all the taxable services at the rate of 0.5% on the value of taxable services. Therefore, as per the section instead of 2% on the value of services, it will be applicable at the rate of 0.5% on the value of services as 1.5% exemption has been given to all the taxable service. It is to be noted that unlike other previous cesses it is not on the service tax instead it is on the value of service.

While issuing this notification board has completely disappointed the majority of tax payers who were expecting the levy only on the selected nature of services as board has completely ignored the word “any of the taxable services” and imposed the SBC on all taxable services rather than imposing on selected nature of services.

2.Services Exempted from payment of SBC

The notification further clarifies that SBC will not be leviable on some of the services for which the relevant proviso of the notification reads as under.

“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. “

As per the proviso SBC is not leviable on the value of services if:

  • The services are exempted by notification issued under sub section (1) of section 93. OR
  • Service Tax is not leviable on it as per section 66B which is charging section for levy of service tax.

Therefore, SBC is not leviable on the following.

  • The service provided and covered under mega exemption notification 25/2012-Service Tax, are not liable for the payment of SBC as services specified under this notification are exempted under sub section (1) of section 93.
  • The services provided to the consulates or foreign diplomatic agents or to their family members as per notification number 27/2012-Service Tax, are not liable for the payment of SBC as service tax is not leviable on it under section 66B.
  • The service provider availing the benefit of exemption granted under notification number 33/2012-Service Tax and not paying service tax upto the value of ₹ 10 lac as small service providers are not liable for the payment of SBC.
  • The service providers availing the benefit of abatement notification 26/2012-Service Tax and paying service tax only on abated value are liable to discharge even SBC on the same abated value as abatement from the payment of service tax is granted under section 66B. Therefore, SBC is not to be charged on the 100% of the value by the service providers who are paying the service tax on the abated value.
  • The services listed under negative list of services under section 66D are not liable for the payment of SBC as service tax is not leviable on it under section 66B.

3.CENVAT credit of SBC

As per sub section (5) of section 119 the provisions of service tax shall apply for the SBC only with respect to the levy and collection. The relevant sub section (5) of the section 119 reads as under.

“(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.”

As per sub section (5) only provisions relating to refund, exemptions and imposition of interest and penalty will apply to SBC. Hence, those provisions relating to the levy and collection of service tax are only applicable to SBC. The chapter VI does not provide any provision to allow the cenvat credit of SBC. Therefore, cenvat credit of SBC is not allowed.

4.Applicability of Point of Taxation Rules, 2011

The Point of Taxation Rules, 2011 (POT) are formed for the collection of service tax and as per sub section (5) of section 119 all the provisions relating to the collection of service tax are equally applicable to SBC also. Therefore, Point of Taxation Rules, 2011 are applicable for collection of SBC also.

It is to be noted that SBC is new levy and cannot be considered as change in effective rate of taxes therefore POT cannot be determined under rule 4 of POT. The POT for provider of service shall be determined under rule 3 or rule 8 as the case may be and for the receiver of service is to be determined under rule 7.

The applicability of SBC under various situations based on rule 3 and rule 7 of POT can be analysed as under.

Sr. No.

Description of service

Applicability of SBC

a) POT RULE 3 – Receipt of advances towards provision of service

(for provider of service)

a.1 Advances received prior to 15/11/2015 invoice and service to be provided after 15/11/15. SBC is not chargeable as POT is date of receipt of advances and prior to 15/11/2015 SBC was not leviable.
a.2 Advances received after 15/11/2015 invoice and service to be provided after 15/11/15. SBC is chargeable.
b) POT RULE 3 – Invoice issued on or after 15/11/15

(for provider of service)

b.1 Invoice for the services provided prior to 15/11/2015 has been issued on or after 15/11/15. SBC is chargeable.
b.2 Services which is to be provided on or after 15/11/2015 and invoice has also been issued on or after 15/11/15. SBC is chargeable
b.3 Services which is to be provided on or after 15/11/2015 but invoice has been issued prior to 15/11/15. SBC is not chargeable as POT is time of issue of invoice and prior to 15/11/2015 SBC was not leviable.
c) POT RULE 3 – Invoice has not been issued within the specified time

(for provider of service)

c.1 The taxable service has been completed on or before 14/11/2015 but invoice has not been issued within 30 days from the completion of service.

(Other than banking company or a financial institution including a non-banking financial company and other than the cases continuous supply of service)

SBC is not chargeable as POT in such cases shall be the date of completion of the provision of service which is prior to the levy of SBC.
c.2 The taxable service has been completed on or before 14/11/2015 but invoice has not been issued within 45 days from the completion of service by the banking company or a financial institution including a non-banking financial company. SBC is not chargeable as POT in such cases shall be the date of completion of the provision of service which is prior to the levy of SBC.
c.3 In case of continuous supply of service such as construction of residential complex service where developer or builder is rendering the service as per contract.

As per the contract or agreement the specific part of the service as mentioned in agreement has been completed on or before 14/11/2015 but invoice has not been issued within 30 days from the completion of service.

SBC is not chargeable as POT in such cases shall be the date of completion of the provision of service which is prior to the levy of SBC.
d) POT RULE 7 – Payment made on or after 15/11/15

(For receiver of service)

d.1 Invoices received prior to 15/11/2015 and payment made on or after 15/11/2015 where service tax is payable by receiver of service under reverse charge mechanism such as Manpower Supply Service, Legal Service, security service, works contract service, import of services, etc. SBC is chargeable as POT is date of payment.
e) POT RULE 7 – Payment not made within 3 months from the date of invoice

(For receiver of service)

e.1 Invoice received dated prior to 15/11/2015 and payment not made on or after 15/11/2015 within 3 months from the date of invoice where service tax is payable by receiver of service under reverse charge mechanism such as Manpower Supply Service, Legal Service, security service, works contract service, import of services, etc. SBC is chargeable as deemed date for POT is next date from the 3 months from invoice date.
f) POT RULE 7 – Liability in case of transaction with Associated Enterprises

(For receiver of service)

f.1 Invoices received are dated prior to 15/11/2015 and payment not made upto 15/11/2015 but debited in the books of accounts prior to 15/11/2015 where service tax is payable as receiver of service for transaction with associated enterprises SBC is not chargeable as POT is debit in the books of accounts or payment whoever is earlier and debit in the books of accounts is prior to the levy of SBC.

5.Percentage of SBC applicable on various nature of services

The various nature of services provided by the service provider and received by the receiver of service and applicability of percentage of SBC on the value of service is analysed in below table.

Sr. No.

Description of Taxable Service

Service tax

Swachh Bharat Cess

1

Service in relation to financial leasing including hire purchase

14% on 10% of service value

0.5% on 10% of service value

2

Transport of goods by rail

14% on 30% of service value

0.5% on 30% of service value

3

Transport of passengers, with or without accompanied belongings by rail

14% on 30% of service value

0.5% on 30% of service value

4

Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises (including hotel, convention centre, club, pandal, shamiana or any other palace, specially arranged for the organizing a function) together with renting of such premises

14% on 70% of service value

0.5% on 70% of service value

5

Transport of passengers by air, with or without accompanied of belongings in

  1. economy class

 

 

  1. other than economy class

14% on 40% of service value

14% on 60% of service value

0.5% on 40% of service value

0.5% on 60% of service value

6

Renting of hotels, inns, guest houses, clubs, campsites or other commercial place meant for residential or lodging purposes

14% on 60% of service value

0.5% on 60% of service value

7

Services of goods transport agency in relation to transportation of goods

14% on 30% of service value

0.5% on 30% of service value

8

Renting of motor cab

14% on 40% of service value

0.5% on 40% of service value

9

Transport of Passengers, with or without accompanied belongings, by

  1. a contract carriage other than motor cab
  2. a radio taxi

14% on 40% of service value

0.5% on 40% of service value

10

Transport of goods in a vessel

14% on 30% of service value

0.5% on 30% of service value

11

Service by a tour operator in relation to,-

  1. a package tour

14% on 25% of service value

0.5% on 25% of service value

  1. a tour, if the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour

14% on 10% of service value

0.5% on 10% of service value

  1. any services other than specified (i) and (ii) above.

14% on 40% of service value

0.5% on 40% of service value

12

Construction of complex, building, civil, structure, or a part thereof, intended for a sale to a buyer, wholly or partly, except where entire consideration is received after issuance of completion certificate by competent authority,-

  1. for a residential unit satisfying both the following conditions, namely:-
  1. The carpet area of the unit is less than 2000 square feet;

And

(ii) The amount charges for the unit is less than rupees one crore;

14% on 25% of service value

0.5% on 25% of service value

  1. for other than the (a) above.

 

14% on 30% of service value

0.5% on 30% of service value

13

Service portion in works contract service covered under reverse charge mechanism:

  1. provided by Individual or HUF or partnership firm or association of persons to a business entity registered as body corporate, in case of original works:
  1. service tax payable by provider of service

 

  1. service tax payable by recipient of service
  1. provided by Individual or HUF or partnership firm or association of persons to a business entity registered as body corporate, by way of :

maintenance or repairs or reconditioning or restoration or servicing of any goods or

maintenance or repair or completion and finishing services like glazing or plastering or wall and tilling or installation of electrical fittings of immovable property

  1. service tax payable by provider of service

 

  1. service tax payable by recipient of service

14% on 20% of service value

14% on 20% of service value

 

 

 

 

14% on 35% of service value

14% on 35% of service value

0.25% on 20% of service value

0.25% on 20% of service value

0.25% on 35% of service value

0.25% on 35% of service value

14

Service portion of works contract service not covered under reverse charges mechanism

  1. in case of original works

 

 

  1. maintenance or repairs or reconditioning or restoration or servicing of any goods OR

maintenance or repair or completion and finishing services like glazing or plastering or wall and tilling or installation of electrical fittings of immovable property

14% on 40% of service value

14% on 70% of service value

0.5% on 40% of service value

0.5% on 70% of service value

15

Renting of motor vehicle designed to carry passengers (not engaged in similar line of service) covered under reverse charge mechanism where services provided by Individual or HUF or partnership firm or association of persons to a business entity registered as body corporate, service tax shall be payable

  1. on abated value,

by service provider

by service receiver

 

b)on non abated value

by service provider

 

by service receiver

0%

14% on 40% of service value

14% on 50% of service value

14% on 50% of service value

0%

0.5% on 40% of service value

0.5% on 50% of service value

0.5% on 50% of service value

16

In case of supply of food or drink or any other article for human consumption in a Restaurant

14% on 40% of total value charged

0.5% on 40% of total value charged

17

In case of supply of food or drink or any other article for human consumption in an Outdoor Catering

14% on 60% of total value charged

0.5% on 60% of total value charged

6.Notification expected for SBC Accounting Code & SBC on Foreign Currency Exchange

The service provider providing the currency exchange service and paying slab wise service tax as per sub rule (7B) of rule 6 is also liable to discharge the SBC on or after 15/11/2015. It is to be noted that to discharge the service tax under this sub rule no provision has been provided to determine the value of service. It is fixed amount and percentage are payable on the value of currency exchanged. The sub rule does not provide for the value of service. However, SBC is applicable on the value of service. Therefore in my view, clarifications will be provided for computation of SBC under this rule. As on 06th November 2015, board has not provided any notification to discharge the SBC on foreign currency exchange service where service provider has chosen to discharge the service tax based on slab provided under sub rule (7B) of rule 6. Hence, provision will be provided to impose the proportionate SBC on it.

The SBC is to be discharged under specific accounting code. However, as on 06th November 2015, board has not provided any notification stating that under which accounting code SBC is to be discharged? We are expecting the notification in this regards soon as in the absence of accounting code assessee cannot discharge the liability of SBC at all.

7.Conclusion

The Diwali bonus in the form of additional levy of SBC is increasing the liability as well as expectations of the people towards the Swachh Bharat Mission. Let us hope for the “clean and healthy India” with this additional levy