SWACHH BHARAT CESS

Section 119 (2) of Finance Act, 2015 provides for the levy of Swachh Bharat Cess (‘Cess’ for short).  The said section provides that 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 2% on the value of such services for the purposes of-

  • Financing and promoting Swachh Bharat initiatives; or
  •  for any other purpose relating thereto.

Section 119 (3) provides that the  Swachh Bharat Cess 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.

Section 119 (1) provides that this Chapter shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.  The Government of India, vide Notification No. 21/2015-ST, dated 06.11.2015 appointed 15.11.2015 for the implementation of levy of the Cess.

Section 119(5) provides that the provisions of Chapter V of the Finance Act, 1994 and the rules made there under, 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 there under, as the case may be.  Therefore all the provisions applicable to service tax are also application to this Cess.

Vide Notification No. 22/2015-ST, dated 06.11.2015 the Government has fixed the Cess rate at 0.5%.  The proviso to this Notification that the  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.  The services coming under the mega exemption list, negative services and other exemption notifications notified by the Government now and then are exempted from the levy of education cess.  In cases of services covered by abatement the same is calculated as if it applies to service tax.  For example in respect of GTA services service tax is leviable on 30% of the value of the service.  The rate of service tax + cess will be at the rate of 14.5% x 30% = 4.35%.

The Cess is payable on or before 6th of the following month if it is paid through internet banking or otherwise on or before 5th of the following month as that of service tax.   The invoice shall indicate the cess separately.   It shall be paid under separate accounting head.   The Board has to assign the accounting code for making the payment to the credit of Central Government.

Section 119(4) provides that the proceeds of the 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, utilize such sums of money of the Swachh Bharat Cess for such purposes specified in sub-section (2), as it may consider necessary.  Therefore the Cess is to be paid separately.  Separate accounts are to be maintained for this purpose.

Since the Point of Taxation Rules will also be applicable the analogy applicable to service tax for deciding the point of taxation will also apply to Cess.  The rate of tax in Point of Taxation is to decided considered the following-

  • Service provided;
  • Raising of invoice;
  • Receipt of consideration.

Out of the above three two would be applicable for deciding the rate of tax.  The following table gives a clear picture as to the rate of tax-

Service period

Invoice issued

Consideration received

Rate of tax including Cess

Before 15.11.2015 After 15.11.2015 After 15.11.2015

14.5%

Before 15.11.2015 Before 15.11.2015 After 15.11.2015

14%

Before 15.11.2015 After 15.11.2015 Before 15.11.2015

14%

After 15.11.2015 Before 15.11.2015 After 15.11.2015

14.5%

After 15.11.2015 Before 15.11.2015 Before 15.11.2015

14%

After 15.11.2015 After 15.11.2015 Before 15.11.2015

14.5%

Cess is also payable on reverse charge mechanism by the service recipients as per the procedure in service tax.  Return is also to be filed for cess also.   For this purpose the Government may frame a separate return or it may include the same in the existing ST-3 return itself.   If it is to be included in ST-3the existing return is to be revised by the Board before the due date of filing return.

Non recovery of cess, nonpayment of cess, short recovery of cess or short payment of cess will cause the recovery of the same under Section 73(1) of Finance Act, 1994.  If there is a failure on the part of the assessee he has to pay the cess with interest and also penalty as stipulated in various provisions of theFinance Act, 1994.

One doubt may come.  Whether CENVAT credit can be availed for Cess? CENVAT credit is coming under the Central Excise Act, 1944.  It is the Central Government to decide to allow taking credit and utilizing credit against the payment of Cess.

This cess is not applicable to central excise duty.