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Swachh Bharat Cess - Detailed Anaylysis - Part 2

Vishal Jain A 
on 14 November 2015

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DETAILED ANALYSIS OF SWACHH BHARAT CESS (“SBC”) PART 2

The government of India wide Notification No. 21/2015 and Notification No. 22/2015 dated 6th November 2015 has made levy and collection of “Swachh Bharat Cess” (SBC) mandatory with effect from the 15th November 2015. There were a few queries on applicability of SBC in different scenarios and the same has been clarified by the Central Government by issuing 3 Notifications - Notification No. 23/2015, 24/2015 & 25/2015 and a Circular dated 12th November 2015.

Question 1: Effect on Abatement Notification (Notification No. 23/2015)

In case of services covered by abatement, what would be effective rate of tax?

Answer:

Doubts were there that whether for the purpose of SBC, whether the value to be considered is Full Value or Abated Value. This could be explained by the following example of GTA Service

Particulars

Option 1

Option 2

1. Full Value

Rs.1,000

Rs.1,000

2. Abated Value

Rs.300

Rs.300

3. Service Tax @ 14% on Abated Value [Rs.300 * 14%]

Rs.42

Rs.42

4. SBC @ 0.5%

    à On Full Value [Rs.1,000 * 0.5%]

    à On Abated Value [Rs.300 * 0.5%]

Rs.5

Rs.1.50

5. Total Tax

Rs.47

Rs.43.50

Now, Option 2 seems to be quite logical as the value for both Service Tax and SBC should be logically the same i.e. abated value. The same thing is explained by Notification No. 23/2015 dated 12th November 2015.

Hence, the effective rate of tax on all Abatement Services would be [14.5% * Effective Rate under Abatement Notification - 26/2012]. For example, the effective rate of tax on GTA service would be [14.5%*30%] = 4.35%.

Note: The same explanation was given in Question No. 6 of “Swachh Bharat Cess – Detailed Analysis – Part 1”

Question 2: Effect on Reverse Charge Cases (Notification No. 24/2015)

Whether a service recipient is also liable to pay SBC if the service is falling under Reverse Charge mechanism?

Answer:

Doubts were there whether in Reverse Charge Cases, SBC would be paid by whom – Service Recipient or Service Provider.

Option 1: SBC would be paid by Service Recipient as he is paying Service Tax also

Option 2: SBC would be paid by Service Provider ignoring the fact that Service Tax is paid by Service Recipient.

Now, Option 1 seems to be quite logical as both Service Tax and SBC should be logically paid by the same person. The same thing is explained by Notification No. 24/2015 dated 12th November 2015.

Note: The same explanation was given in Question No. 2 of “Swachh Bharat Cess – Detailed Analysis – Part 1”

Question 3: Effect on Composition Schemes – Rule 6(7) / Rule 6(7A) / Rule 6(7B) and Rule 6(7C) of Service Tax Rules, 1994 (Notification No. 25/2015)

Whether SBC would be applicable on services covered by Rule 6 of Service Tax Rules (i.e. Air Travel Agent Service, Life Insurance Premium Service, Money Changing Service and Promotion of Lottery Tickets Service)?

Answer:

Doubts were there whether in case of Composition Schemes, SBC would be levied or not as special rates are mentioned in those schemes.

Though, SBC was NOT be applicable on such services as special rates are given for such services, the writer expected that consequential amendments under the aforesaid rules may come to increase these special rates correspondingly. The same thing is explained by Notification No. 25/2015 dated 12th November 2015.

For example, if service tax is computed as Rs.1,000 as per the composition scheme, SBC would be calculated as Rs.1,000 * 0.5% /14% = Rs.36 (approx.)

Note: The same explanation was given in Question No. 8 of “Swachh Bharat Cess – Detailed Analysis – Part 1”

Question 4: Effect on Ongoing Services (Circular)

How will ongoing services be effected?

Answer:

Doubts were there as to what will the impact of imposition of SBC on ongoing services. As per the interpretation of the writer (before the Circular), for ongoing services Rule 4 of Point of Taxation Rules, 2011 will be applicable and the same was explained in Question No. 5 of “Swachh Bharat Cess – Detailed Analysis – Part 1”

However, the Board (CBEC) vide Circular dated 12th November 2015 has analyzed this situation and interpreted that for ongoing services Rule 5 of Point of Taxation Rules, 2011 will be applicable since this levy has come for the first time.

In the following situations there shall be no levy of SBC for a service provider:

  • In case where payment has been received and invoice is raised before the service becomes taxable, i.e., prior to 15th November, 2015
  • In case payment has been received before the service became taxable i.e. before 15th November, 2015 and invoice is raised within 14 days of new imposition i.e. within 29th November, 2015

In any other situation, there shall be levy of SBC along with Service Tax

Date of Receipt of Payment

Date of Issuance of Invoice

Effective Rate

Before 15th Nov. 2015

Before 15th Nov. 2015

14%

Before 15th Nov. 2015

After 15th Nov. 2015 but Before 29th Nov. 2015

14%

Before 15th Nov. 2015

After 29th Nov. 2015

14.5%

After 15th Nov. 2015

Before / After 15th Nov. 2015

14.5%

Note: The explanation given by writer in Question No. 5 of “Swachh Bharat Cess – Detailed Analysis – Part 1” was based on a different interpretation and the writer accepts that the explanation given by the CBEC in Circular dated 12th November 2015 is more logical and rational keeping in mind the landmark judgment of Hon'ble Supreme Court in case of VAZIR SULTAN TOBACCO - 1996 - SC on the same issue in Central Excise, where it was held every new excise duty should be seen as a new levy.

Swachh Bharat Cess – Detailed Analysis – Part 1

YOUR VIEWS AND COMMENTS ARE MOST WELCOME EVEN IF THEY ARE CONTRARY.

Author: Vishal Jain A, B. Com., ACA, ACS
Email: ca_va_jain@yahoo.com


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