Swachh Bharat Cess ('SBC') - Is it really so Swachh?

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1 1 of 5 12/11/2015 6:27 PM Click to Print Click to Close Swachh Bharat Cess ('SBC') - Is it really so Swachh? NOVEMBER 12, 2015 By Naresh K Sheth, CA & Shraddha Mehta, CA Preamble and Background: SECTION 119 was inserted by Finance Act 2015 w.e.f wherein Government assumed power to levy Swachh Bharat Cess ('SBC') at 2% on of all or specified taxable s from the to be notified. All provisions of Chapter V of the Finance Act, 1994 and rules made thereunder, including those relating to refunds and exemption from tax, interest and imposition of penalty are made applicable to collection and levy of SBC. Notifications No. 21/ ST and 22/ ST both d : The Government, vide Notification No. 21/ ST d , notified the levy of SBC on all taxable s w.e.f Simultaneously an exemption was granted in respect of SBC vide Notification No.22/ ST d In nutshell, SBC of 0.5% is levied on of all taxable s w.e.f This amendment has many ramifications apart from increase in minor tax incidence. Abrupt and sudden introduction: The question that arises is as to was there any need to introduce such a Cess when GST is on anvil and whether such Cess would continue in GST regime also. One is further perplexed about effective of such levy i.e. 15th November 2015 and that too Sunday!!!! Why SBC is made effective from odd instead of a proper cut-off i.e. first of quarter either 1st October 2015 or 01st January 2016 or at least beginning of month? This type of effective makes life of assessee, consultant and tax officers miserable. The tax returns (ST-3) will have to be modified and even code for payment of SBC will have to be notified. Hope the same will be done within time! Solace is that SBC is 0.5% only due to an exemption and not 2% as the enactment says. The way in which the law was enacted indications were that SBC would be on select s. However, the world now knows that it is not so! SBC and RCM: The receiver discharging tax liability under RCM will also be liable to SBC on payments effected by them on or after Point of taxation and Effective of levy: Any provided on or after will be liable to SBC. In other words, any for which point of taxation ('POT') arises on or after will be liable to SBC. The question arises whether levy of SBC results into change in effective rate of tax and consequently Rule 4 of Point of Taxation Rules, 2011 ('POTR') is triggered for determining POT in respect of transaction concluded before ? Section 65B(50) defines "tax" to mean tax leviable u/s 66B of the Act. SBC is a Cess levied u/s 119 of the Act and not a tax levied u/s 66B of the Act. Levy of SBC does not amount to change

2 2 of 5 12/11/2015 6:27 PM in effective rate of tax. Hence, Rule 4 of POTR does not get triggered in such a case. Rule 3 determines POT for tax payable under straight charge. Rule 7 determines POT in respect of Reverse Charge Mechanism ('RCM') on transactions with associated enterprise ( provider located outside India) and also on transactions with other parties. If POT for arises before , SBC will not apply. If POT happens to be on or after , SBC will apply.the matrix of various situations is as under: Transaction of Provided (Rule 3 of POTR): Date of Date issue of invoice Date of payment POT Whether SBC is applicable? (within 30 days of ) No (after 30 days from ) ( of ) Yes No RCM on transaction with associated enterprise (Rule 7 of POTR): Date of entry in books of account Invoice Payment POT No Yes No RCM on transaction with other parties (Rule 7 of POTR): Invoice No Whether SBC is applicable? Payment POT Whether SBC is applicable? No Yes (payment not within 3 months) Effective tax rate after SBC: liable to full rate of tax ( following end of 3 months) Effective tax rate would be 14.50% on of taxable s provided on or after entitled to Abatement: Abatement is a partial exemption and hence abatement benefit will be available in respect of SBC also. A statement of effective rate (after factoring SBC) is as follows: Yes Description of taxable s in relation to financial leasing including hire purchase Taxable portion tax SBC 10% 1.40% 0.05% 1.45% Effective rate of tax

3 3 of 5 12/11/2015 6:27 PM Transport of goods by rail 30% 4.20% 0.15% 4.35% Transport of passengers by rail 30% 4.20% 0.15% 4.35% Banquet s 70% 9.80% 0.35% 10.15% Air travel of passengers in: a) Economy Class 40% 60% 8.40% 5.80% 0.30% 8.70% b) Other than economy class Renting of hotels, etc. 60% 8.40% 0.30% 8.70% GTA s 30% 4.20% 0.15% 4.35% Renting of motor cab 40% 5.80% Â Transport of passengers by: a) carriage other than motorcab 40% 5.80% b) radio taxi Transport of goods in a vessel 30% 4.20% 0.15% 4.35% s by a tour operator in relation to,- (i) a package tour (ii) a tour, if the tour operator is providing s solely of arranging or booking accommodation for any person in relation to a tour 25% 10% 40% 3.50% 1.40% 0.125% 0.05% 3.625% 1.45% 5.80% (iii) any s other than specified at (i) and (ii) above. a) Sale of under construction flats satisfying both the following conditions namely: i. carpet area< 2000 sq. feet ii. amount charged for the unit < Rs. 1 crore 25% 30% 3.50% 4.20% 0.125% 0.15% 3.625% 4.35% b) for other than (a) above s d as per Valuation Rules: In case of s d in terms of tax (Determination of Value) Rules, 2006 ('Valuation Rules'), SBC would be 0.5% of the of the as determined under Valuation Rules. Reference to Valuation rule Taxable Value of tax SBC Effective Rate including SBC 2A(ii)(A) Original Works 40% of 5.80% of 2A(ii)(B) Other Works Contract 70% of 9.80% 70%) 0.35% 70%) 10.15% of 2B Money Changing Absolute Value as per Rule 14% of such 0.5% of such 14.50% of such 2C Restaurant Sales 40% of total 5.80% of total

4 4 of 5 12/11/2015 6:27 PM 2C Outdoor Catering 60% of total 8.40% 60%) 0.30% 60%) 8.70% of total liable to tax at alternate rate of tax as specified under Rule 6 of Tax Rules, 1994 ('STR'): tax Rules provides for tax payment at alternate rate of tax on following s: Rule 6(7) Air Travel Agent 6(7A) 6(7B) 6(7C) Life Insurance Money Changing Lottery Selling SBC is payable on the of the taxable s. In above cases, it is difficult to work out of the s. There could be confusion for working out tax as stated in the example of air travel agent selling international tickets given below: Alternate manner of calculating SBC Basic Fare 1.4% of basic fare U/R 6(7) of STR 0.5% of of taxable 0.5% of tax 1,00, Rs. 7 Rs.1400) 0.5% of the assumed of the Amount payable (as alternate to tax) includes SBC To work out of actual s and pay SBC thereon 1,00, Rs 50 (0.50% of Rs. 10,000) 1,00, Nil?????? CBEC should come out with immediate clarification on how to discharge SBC on above referred special rated s. Cenvat Credit of SBC: Rule 3(1)(ixa) and (ixb) of CCR allows the provider of output to cenvat credit of tax leviable under section 66A and 66B of the Finance Act, Hence, only tax levied under section 66A or 66B of the Finance Act is Cenvatable. SBC is levied under section 119 of the Finance Act Hence, as per CCR, SBC is not Cenvatable as it is not levied under 66A or 66B of the Finance Act. As the law stands today, SBC is not Cenvatable. It would add to the cost of goods and s procured by manufacturer or provider. In all fairness, Government should amend CCR to enable provider to take cenvat credit of SBC. This will be in consonance with sound principles of added tax. It will avoid double taxation and cascading effect of tax. SBC and Payment under Rule 6(3)(i) of CCR: Whether provider providing exempt and taxable s opting to pay 7% on exempt s under Rule 6(3)(i) CCR is liable to pay SBC on such amount? SBC is payable on the of the taxable s. An amount payable under Rule 6(3)(i) of CCR is not of s. Hence, such amount should not be liable to SBC. Refund of SBC for exporter of or goods:

5 5 of 5 12/11/2015 6:27 PM SBC is not Cenvatable and hence exporter claiming refund under Rule 5 of CCR [read with Notification No.27/2012-CE (NT) d ] will not be entitled to refund of SBC. A exporter claiming rebate under Notification No.39/2012-ST d will be entitled to refund or rebate of SBC as said notification specifically provides for rebate of tax and Cess. An exporter of goods claiming rebate of tax under Notification No. 41/2012-ST d will not be entitled to rebate of SBC as said notification grants rebate only in respect of tax. SBC and Rule 4A of STR: provider will be required to charge tax and SBC separately in the invoice. The collections and payments of tax and SBC will have to be separately accounted for. Many taxpayers (especially large ones) will have to modify or upgrade their billing and accounting software. The period is too short i.e. hardly nine days out of which 4-5 days are Diwali days. Is it fair to push taxpayers so hard? Conclusion: SBC is a Diwali gift by tax bureaucracy to the nation and citizens do not have any option but to accept it. If this is what is meant by "Acche Din" and "ease of doing business", then perhaps we all need to redefine the meaning of these words in the days to come! (DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the sites) Â Click to Print Click to Close