Implications of Swachh Bharat Cess (SBC)

Last year's Budget (Finance Act 2015) contained provisions for levy and collection of SBC.

Vide Notification No. 21/2015-Service Tax, government notified levy of SBC @ 0.5% as stated in Finance Act 2015 on all taxable services, except those services which are fully exempt or covered in Negative List.

Following Implications should be observed with respect to that:

1. SBC is called a CESS, but it is treated at par with Service Tax. Hence, it is to be calculated on Value of Taxable Services, and NOT on Service Tax amount.

2. SBC is applicable on all taxable services, therefore, excluding those which are fully exempt or covered in Negative list.

3. SBC is to be calculated, accounted and paid separately. Therefore, separate disclosure of SBC amount on invoice is required.

4. Point of Taxation for SBC: SBC is applicable from 15-Nov-2015. Considering the provisions of Point of Taxation Rules:
 

5. Accounting of SBC: It is advisable to account SBC in separate accounting code in the books of accounts for service providers. It is also mentioned in the FAQ issued by CBEC.

However, it is not necessary for service receivers to account for SBC in a separate account code.For them, it is as good as another tax expense, so they can very well include the amount in their parent expense code. (As is the practice for CST - Central Sales Tax).

In future, if CENVAT credit for SBC is allowed, then at that time the amount may be accounted in separate account code by service receivers also, at which time it would be a Balance Sheet GL.

6. CENVAT Rules are not integrated with SBC. Therefore, SBC is to be paid separately, without adjusting any balance of CENVAT available to the person. CENVAT of SBC paid is not available, similarly, no CENVAT balance available for payment of SBC.

7. Application of Other Provisions of the Act on SBC: All the provisions of Chapter V of Finance Act, 1994 are applicable to SBC also. Therefore, SBC is treated at par with Service tax.

7a. Applicability of Reverse Charge: Applicable SBC is to be paid by recipient of service, when Reverse charge is applicable, same as Service tax.

7b. Abatement Implications: SBC is to be calculated on Abated value, same as Service Tax.

7c. Due date and Interest/Penalty implications: Due dates are same as Same as Service Tax.

7d. Application on Restaurant Services: The SBC liability would be 0.5% of 40% of the total amount, i .e, 0.2% of the total amount. Therefore, cummulative amount of tax would be 5.8% [5.6% ST + 0.2% SBC] of the amount of service.

8. Implications of Rule 6 of CENVAT Credit Rules (Re. Reversal of Credit where person provides both taxable and exempt services): As CENVAT is not integrated with SBC, hence SBC is not to be reversed on application of Rule 6.

9. Application of SBC on services of air travel agent, life insurance premium, purchase and sale of foreign currency and services by lottery distributors/selling agents:
As per Rule 6(7D) inserted vide notification 25/2015-Service Tax, dated 12-Nov-2015 so as to provide that the person liable for paying the service tax under sub‑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)] * 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.

Source:
CBEC Website:
- Notification http://www.cbec.gov...
- FAQ http://www.cbec.gov...