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It is a regular practice of the government to follow tactics that are illusive and misleading. One of the tricks adopted by the government while increasing the rate of service tax is that during the Budget Speech, the Hon’ble Finance Minister announced increase in rate of service tax from 12.36% (inclusive of Education Cess and SHE Cess) to 14% (after exemption from Education Cess and SHE Cess). However, the effective rate of service tax that will come force after the Finance Bill receives the assent of the President is 16% because a new Cess has been introduced by the government in the Finance Bill, 2015. Hence, the government knew that there will be opposition from the people regarding hike in service tax from 12% to 16% and so it chose to increase the rate of service tax in indirect manner, thereby burdening the common man.

The Finance Minister has announced Budget on 28th of February, 2015,  wherein a new chapter VI has been inserted in the Finance bill that contains a new levy of cess called the ‘Swachh Bharat Cess’. This chapter empowers the government to impose Cess on all the taxable services at the rate of 2% of the value of taxable services. This cess shall be levied from such date as may be notified by the Central Government after the enactment of the Finance Bill, 2015.

It is worth observing that the Government has not given any further details of this levy “ Swachh Bharat Cess”. Consequently, a number of questions are haunting the minds of the assessee as follows:-

1. Whether there will be new accounting head for deposition of this cess?

2. Whether Cenvat credit of this cess will be available or not because there are no amendments proposed in the Cenvat Credit Rules, 2004?

3. Whether there will be restriction as regards utilisation of cess as was in case of Education Cess and SHE Cess or not?

The above cited questions will remain unanswered until the enactment of Finance bill, 2015. But it seems that in respect of indirect tax, Government’s main focus on service tax. They are going to raise the rate of service tax from 12.36% to 14% and then this Swachh Bharat cess of 2% of the value of taxable service is also applicable on all services. We can say that Government has indirectly enhanced the rate of service tax to 16% after enactment of Finance bill.

It’s also seems that service providers will play the main roll in fulfilling Mr. Narendra Modi’s Dream of Swachh Bharat. His dream will be fulfilled with the provision of services by the service providers. However, with the introduction of this levy and the hike in the service tax rate, the burden of tax on the common man has definitely increased as service tax is an indirect tax regime whose ultimate burden is to be borne by the service recipient. It is to be observed that how far the new government would be able to meet out the expectations of the public who had instilled confidence in the said government to reduce the inflation.  

By: CA Pradeep Jain & Bharat Rathore

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