All you need to know about Swachh Bharat Cess

SWACHH BHARAT CESS

1. What is Swachh Bharat Cess (SBC)?
SBC is tax in addition to Service Tax which shall be levied and collected in accordance with the provisions of Chapter VI of the Finance Act, 2015,called “Swachh Bharat Cess”, as service tax on all the taxable services at the rate of 0.5% of the value of taxable service. Officially in the Finance bill 2015,The rate was 2% on the value of Taxable services. However, official Notification No.21/2015-Service Tax, dated 6th November, 2015,CBEC had imposed only 0.5% and give abetment of 1.5%.     SBC has been imposed for the purposes of financing and promoting Swachh Bharat initiatives by government. (Refer official Notification No.21/2015-Service Tax, dated 6th November, 2015)

2. Commencement

It shall come into force from 15th Nov’2015 on the value of all taxable services

3. How SBC will be calculated?
SBC would be calculated in the same way as Service tax is calculated. Therefore, SBC would be levied on the same taxable value as service tax. SBC is not to be calculated on Service Tax but on the taxable value of the service provided.

3. Whether SBC would be required to be mentioned separately in invoice?
SBC would be levied, charged, collected and paid to Government independent of service tax. This needs to be charged separately on the invoice, accounted for separately in the books of account and paid separately under separate accounting code. SBC may be charged separately after service tax as a different line item in invoice. It can be accounted and treated similarly to Education cesses.

4. What would be effective rate of service tax and SBC post introduction of SBC?
Effective rate of service tax plus SBC, post introduction of SBC, would be [14% + 0.5%]. Both the taxes needs to be mentioned on invoice separately.

5. Valuations

A) Normal Value

Value of SBC will be calculated in the same manner as Service Tax is calculated in case of services.

For example, [Service Tax + SBC]% would be (14% Service Tax + 0.5% SBC) X Valuation as per Section 67(1)

B) Abated Value

Value of SBC will be calculated in the same manner as Service Tax is calculated in case of services for which Abatement is applicable.

For example, in the case of GTA, [Service Tax + SBC]% would be (14% Service Tax + 0.5% SBC) X 30% = 4.35% (4.20%+0.15%)

C) Composition Scheme

Person liable for paying the service tax under sub- 6 rule (7), (7A), (7B) or (7C) of rule 6 of Service Tax Rules, shall have the option to pay SBC as determined as per the following formula:-

Service Tax liability [calculated as per sub-rule (7), (7A), (7B) or (7C)] X 0.5% / 14%

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.

An example for this is as follows:

A lottery distributor of a lottery in which less than 80% is distributed as guaranty prize payout and total amount on selling lottery ticket collected is 15 Lakhs than in this case as per valuation rules, Service tax payable is Rs.22000; value of SBC in this case will be Rs.22000 x 0.5%/14% i.e Rs. 786.

D) Value as per Valuation rules

The tax (Service Tax and SBC) on services covered by Rule 2A, 2B or 2C of Service Tax (Determination of Value) Rules, 2006, would be computed by multiplying the value determined in accordance with these respective rules with [14% + 0.5%]. Therefore, effective rate of Service Tax plus SBC in case of original works and other than original works under the works contract service would be 5.8% [(14% + 0.5%)*40%] and 10.15% [(14% + 0.5%)*70%] respectively. Similar, would be the tax treatment for restaurant and outdoor catering services.

6. What would be the point of taxation for Swachh Bharat Cess?

As per the notification No. 24/2015-Service Tax dated 12th November, 2015,Following are possible scenarios for point of taxation of SBC:

– In cases where payment has been received and invoice is raised before the service becomes taxable, i.e. prior to 15th November, 2015, there is no lability of Swachh Bharat Cess.

– In cases where payment has been received before the service became taxable and invoice is raised within 14 days, i.e. upto 29th November, 2015, even then the service tax liability does not arise.

– Swachh Bharat Cess will be payable on services which are provided on or after 15th Nov, 2015, invoice in respect of which is issued on or after that date and payment is also received on or after that date.

– Swachh Bharat Cess will also be payable where service is provided on or after 15th Nov, 2015 but payment is received prior to that date and invoice in respect of such service is not issued by 29th Nov, 2015.

Rule 5 of Point of Taxation Rules, 2012 is applicable in case of SBC since it has been made applicable for the first time. However in cases where Rule 5 is not applicable i.e cases in which Payment is on or after the date of levy will be governed by Rule 3. Hence the Point of Taxation in different cases will be as follows:

Futuristic Estimated Dispute

As per aforesaid Point of Taxation’s point reflecting the same scenario as mentioned in rule-5 of point of taxation rule and rule-5 is levied whenever a new levy comes in force. However ,There might be some cases of dispute in future regarding the applicability of rule-5 because as per the finance act 2015 SBC shall be levied on the value of taxable service and it is in addition to the service tax which would bring the SBC to the rule-4 which says “Change in rate of tax”. So, Might be some chances where industry would raise query that if SBC is chargeable in addition to the service tax then it should be govern by rule-4 of point  of taxation.

5. Whether Cenvat Credit of the SBC is available?

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 i.e only payable in cash basis. Consequently, this will give birth to the cascading effect in the chain of SBC.

7. How will the SBC be calculated for services under reverse charge mechanism?

In case of reverse charge under section 68(2) of the Finance Act, 1994, the liability has been shifted from service provider to the service recipient. As per section 119 (5) of the Finance Act, 2015, the provisions of Chapter V of the Finance Act, 1994, and the rules made thereunder are applicable to SBC also. Thus, the reverse charge under section 68(2) of the Finance Act, 1994, is made applicable to SBC. In this context, to clarify, Government has issued notification No. 24/2015-Service Tax dated 12th November, 2015 to provide that reverse charge under notification No.30/2012-Service Tax dated 20th June, 2012 shall be applicable for the purpose of levy of Swachh Bharat Cess mutatis mutandis.

Point of Taxation for Service Receiver

Rule 7 of Point of Taxation Rules overrules Rule 3, 4 and 8A but it does not overrule Rule 5. However for applicability of Rule 5, Date of payment should be prior to date of levy. Hence for checking applicability in case of reverse charge Rule 7 will be referred.

11. Does a person providing both exempted and taxable service and reversing credit @ 6% of value of exempted service under Rule 6(3) of Cenvat Credit Rules, does he need to reverse the SBC also?

As SBC is not integrated in the Cenvat Credit chain and reversal under Rule 6 is payment of amount equal to 6% of the value of exempted services, hence, reversal of SBC is not required under Rule 6 of Cenvat Credit Rules, 2004.