Press Information Bureau Government of India inistry of Finance 06-November-2015 19:47 IST Government decides to impose a Swachh Brarat Cess at the rate of 0.5% on all services presently liable to service tax, with effect from 15th November 2015; Proceeds from this cess to be exclusively used for Swachh Bharat initiatives Swachh Bharat Cess is not another tax but a step towards involving each and every citizen in making contribution to Swachh Bharat. In this direction, the Government has decided to impose, with effect from 15th November 2015, a Swachh Brarat Cess at the rate of 0.5% on all services, which are presently liable to service tax. This will translate into a tax of 50 paisa only on every one hundred rupees worth of taxable services. The proceeds from this cess will be exclusively used for Swachh Bharat initiatives. In the General Budget, 2015-16, a provision was made for levying a Swachh Bharat Cess on all or any of the services, for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto. We are a country of more than 120 crore people. For such a vast and populous country we do have our fair share of cleanliness concerns. In fact, persons entrusted with the job of keeping our country clean, struggle constantly. Ceanliness also has huge impact on public health. Dirty surrocundings also cause many diseases, like, malaria, dengue, diarrhea, jaundice, cholera etc., with associated high public health expenditure. According to the Government of India estimates, expenditure on health adds up to Rs.6,700 crore annually (approximately Rs.60 per capita). Increased allocation for Swachh Bharat Abhiyan can prevent many of these diseases with consequential benefit to one and all. Study by American Journal of Tropical edicine and Hygiene reveals that between 2006 and 2012, India reported an annual average of 20,474 dengue cases, with direct medical cost of about Rs.3500 crore per annum. DS/A/KA ***** 1
[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)] GOERNENT OF INDIA INISTRY OF FINANCE (DEPARTENT OF REENUE) New Delhi, the 6 th November, 2015 Notification No. 22/2015-Service Tax G.S.R. ---(E).- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) read with sub-section (5) of section 119 of the Finance Act, 2015 (20 of 2015), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts all taxable services from payment of such amount of the Swachh Bharat Cess leviable under sub-section (2) of section 119 of the said Act, which is in excess of Swachh Bharat Cess calculated at the rate of 0.5 percent. of the value of taxable services: Provided that Swachh Bharat Cess shall not be leviable on services which are exempt from service tax by a notification issued under sub-section (1) of section 93 of the Finance Act, 1994 or otherwise not leviable to service tax under section 66B of the Finance Act, 1994. This notification shall come into force from the 15 th day of November, 2015. [F.No. 354/129/2015 - TRU] (K. Kalimuthu) Under Secretary to the Government of India 2
[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3, SUB-SECTION (i)] GOERNENT OF INDIA INISTRY OF FINANCE (DEPARTENT OF REENUE) New Delhi, the 6 th November, 2015 Notification No. 21/2015-Service Tax G.S.R. ---(E).- In exercise of the powers conferred by sub-section (1) of section 119 of the Finance Act, 2015 (20 of 2015), the Central Government hereby appoints the 15 th day of November, 2015 as the date with effect from which the provisions of Chapter I of the said Act, shall come into force. [F.No. 354/129/2015 - TRU] (K Kalimuthu) Under Secretary to the Government of India 3
Impact of imposition of Swachh Bharat Cess on various services: FAQs Finance Act 2015 had provided provision for levy and collection of Swachh Bharat Cess () under section 119 of the Finance Act, 2015 at a rate not exceeding two percent on the value of services. The levy was to become effective from the date to be notified by the Government. The objective of behind introducing was to fund for Government s flagship program of Swachh Bharat. Incidentally, it was also seen as precursor to introduction of GST where rate of tax is expected to be substantially higher than current rate of service tax. Now the government has come up with introduction of immediate post festive season. Notification no. 21/2015 has been issued appointing 15 th November, 2015 as the date from which the provision of section 119 would become effective. This means, the cess has been introduced on all taxable services w.e.f. 15.11.2015. Simultaneous to this, another notification no. 22/2015-ST has been issued whereby exemption has been granted in excess of calculated at the rate of 0.5 percent of the value of taxable services. Effectively, rate of cess would be 0.5% and new rate of service tax would be 14.5%. There would be consequential impact on many other aspects under services tax law which the author has attempted to discuss in FAQ form. 1. What would be effective rate of service tax post introduction of? Effective rate of service tax post introduction of would be 14.5%. 2. In case of services covered by abatement, what would be effective rate of tax? Say GTA service where presently tax is payable at 4.2% (14%*30%)? Section 119 provides that would be levied and collected as service tax. Further, sub section 5 provides that provision of chapter of the Finance Act would apply to as they apply to service tax. The abatement notification is issued under section 93 (chapter ) of the Act. So, this notification would apply for also in the same manner as apply for service tax. Hence, the effective rate of tax on all abatement services would be 14.5% * effective rate under Notification 26/2012-ST. For GTA, it would be 14.5%*30%= 4.35% (not 4.70%) 3. In case of works contract, how would the tax be calculated? The value of services would be calculated as per Rule 2A of Service Tax (Determination of alue) Rules, 2006. Tax needs to be applied on the value so arrived at the rate of 14.5%. Effective rate of tax in case of original works and other than original works would be 5.8% 4
(14.5%*40%) and 10.15% (14.5%*70%) respectively. Similar, would be for restaurant and outdoor catering services. 4. Whether would be applicable on services covered by Rule 6 of Service Tax Rules (i.e. air travel agent, insurance premium, purchase and sale of foreign currency) There is no specific exemption for such services. Therefore technically speaking one has to compute taxable value for the purpose of computing though for computing service tax the special rates are applied. However paper writer feels that there may be consequential amendment to deal with it. 5. I am paying service tax on few services under reverse charge mechanism. How would have impact on my tax liability? would be applicable on all taxable services. Hence, you need to pay along with service tax on the services availed by you. 6. Whether needs to be collected and paid separately from service tax or subsumed in existing service tax rate? would be levied, charged, collected and paid to government independent of service tax. This needs to be charged separately on the invoice, needs to be accounted separately in the books of account and needs to be paid separately under separate accounting code which should be notified separately. 7. Services presently provided by me are covered by mega exemption notification i.e. 25/2012-ST. Do I need to charge on services provided by me? No, it has been specifically provided in the NotificationNo. 22/2015 that would not be applicable on services exempted from levy of service tax. Hence, you need not to charge on the services covered by mega exemption notification. Similar would be treatment of negative list services. 8. If services have been provided prior to 15 th November but invoiced on or after 15 th November, whether would be applicable? (no advance received) There is anomaly between section 67A of the Finance Act, 1994 and Rule 4 of Point of Taxation Rules, 2011. As per section 67A, the rate of tax would be applicable as on the date on which service is provided. On the other hand, Rule 4 of Point of Taxation Rules provides that rate of tax would be applicable based on 2 out of 3 events. 5
If one follows section 67A, would not be applicable in the given example. On the other hand, if one follows Point of Taxation Rules, 2011 would be applicable as two (raising of invoice and receipt of consideration) out of three events are occurring post 15.11.2015. 9. What would be rate of tax where services are provided before and after imposition of? The impact of introduction of on different situations is summarized below. (assuming that applicable rate is determined as per Rule 4 of Point of Taxation Rules, 2011) Service provided Invoice issued Payment received Before imposition of Before imposition of Before imposition of After imposition of After imposition of After imposition of After imposition of After imposition of Before imposition of After imposition of Before imposition of After imposition of Before imposition of After imposition of Before imposition of Before imposition of Before imposition of After imposition of Rate to be considered 14.5% 14% 14% 14.5% 14% 14.5% 10. How would liability be determined in case of reverse charge services where services have been received prior to 15.11.2015 but consideration paid post 15.11.2015? In case of reverse charge services, point of taxation as per Rule 7 of Point of Taxation Rules, would be the date on which consideration is paid to service provider. Hence, would also be required to be paid in such cases. 11. Whether paid on input service would be eligible as credit? There is no amendment in the Cenvat Credit Rules, 2004 regarding availment and utilisation of. In the absence of the same, credit would not be admissible. (Are we really moving toward GST regime where it is claimed that there would be no cascading effect of taxes and full credit would be allowed) One can expect suitable amendment is brought in Cenvat Credit Rules, 2004 to provide for availment and utilisation of. If not brought, this would be very trade regressive measure. 12. What would be impact of imposition of on cost of goods and services? 6
In the absence of any notification providing for availment of credit of, it would directly add to the cost of product and services. If you are manufacturing excisable goods, you will have to factor in additional cost of 0.5% on all services received by you in the course of manufacturing. Similarly, if you are providing taxable service, paid on all your input service become cost. If you are exporter of goods or service, you will not be entitled for refund of. 13. I am providing both exempted and taxable service and reversing credit @ 7% of value of exempted service under Rule 6 of Cenvat Credit Rules? Do I need to reverse the also? would be levied and collected as service tax. Reversal under Rule 6 is not payment of service tax but it is payment of amount. Hence, reversal of is not required under Rule 6 of Cenvat Credit Rules, 2004. 14. I am manufacturing excisable goods. Do I also need to charge in addition to excise duty? No, is levied under chapter I of the Finance Act, 1994 and is applicable only on provision of service. There is no imposition of on the goods manufactured hence, you are not liable to pay on manufacturing of excisable goods. Conclusion Though the objective of the collection of specific cess for a Swachh Bharat ission is appreciable, the psychological impact on common man would be high with increased burden of taxes. This is especially with the fact that there is no provision for credit (unless it is provided for) and also additional burden on the business man to keep track of the one more tax, as to invoicing, record keeping, payment and returns filing. You can reach authors at madhukar@hiregange.com or ashish@hiregange.com. CA adhukar N. Hiregange CA Ashish Chaudhary 7
Swachh Bharat Cess @ 0.5% on value of all taxable services levied from November 15, 2015 - Pursuing with r. Narendra odi s Dream of Swachh Bharat, in Union Budget 2015, a provision was made for levying a Swachh Bharat Cess ( SB Cess ) on all or any of the services, for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto. However, the SB Cess was to be levied from such date as may be notified by the Central Government after the enactment of the Finance Bill, 2015. SB Cess now made applicable from November 15, 2015 Notification No. 21/2015-ST dated November 6, 2015: After the Hon ble President had given assent to the Finance Bill, 2015 on ay 14, 2015, the inistry of Finance, Department of Revenue vide Notification No. 14/2015-ST dated ay 19, 2015 had notified increase in the rate of Service tax from 12.36% to flat 14% (Subsuming Education Cess and Secondary & Higher Secondary Education Cess) to be effective from June 1, 2015. But SB Cess was left to be notified at a later date. Now, the Central Government vide Notification No. 21/2015-ST dated November 6, 2015 has appointed November 15, 2015 as the date from which, SB Cess shall be effective. SB Cess would be over and above the present 14% Service tax rate. SB Cess at the rate of 0.5% will be levied on value of all taxable services Notification No. 22/2015-ST dated November 6, 2015: Section 119 of the Finance Act, 2015 (Chapter I) that contains a provision of new levy of cess called the SB Cess, empowers the Central Government to impose Cess on all or any of the taxable services at the rate of 2% of the value of such services, for the purpose of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto. Therefore, the Central Government has also issued another Notification i.e. Notification No. 22/2015-ST dated November 6, 2015 to exempt all taxable services from payment of SB Cess which is in excess of 0.5% of the value of taxable services. In other words, w.e.f. November 15, 2015 SB Cess @ 0.5% will be levied on value of all taxable services i.e. the effective rate of Service tax including SB Cess will be 14.5% from November 15, 2015. No SB Cess on services specified under the Negative List of services or otherwise exempted by a notification issued under sub-section (1) of section 93 of the Finance Act, 1994: 8
Notification No. 22/2015-ST dated November 6, 2015 further provides that SB Cess shall not be leviable on services which are exempt from Service tax by a notification issued under Section 93(1) of the Finance Act, 1994 or otherwise not leviable to Service tax under Section 66B thereof. Therefore, SB Cess @ 0.5% will be levied on value of all taxable services except the following: Negative List of Services under Section 66D of the Finance Act, 1994 Services exempted by a notification issued under sub-section (1) of Section 93 of the Finance Act, 1994 i.e. o ega Exempted Services vide Notification No. 25/2012-ST dated June 20, 2012. o Services exempted as specified to certain extent under the Abatement Notification No. 26/2012-ST dated June 20, 2012 Open issues that require immediate clarification from the Board: It is worth observing that the Government has not provided any further details of the levy of SB Cess. The continuous hike in Service tax rate from 12.36% to 14% and now 14.5% will definitely raise the burden of taxes on the Aam Aadmi. Further number of issues may crop up if no further clarification is issued, few of which are discussed as under: a) Accounting head: What will be the accounting head for depositing SB Cess? b) Availability of Cenvat credit of SB Cess in the hands of anufacturer or Service Provider: Whether Cenvat credit of SB Cess would be available or not as there is no amendments proposed in the Cenvat Credit Rules, 2004 pertaining to availment of Cenvat credit of SB Cess? c) Calculation of value of taxable services under Abatement Notification: How SB Cess would be dealt while availing the benefit of abatements by way of an exemption provided vide Abatement Notification No. 26/2012-ST dated June 20, 2012. For example, under GTA services, presently, abatement of 70% is available and accordingly, Service tax is required to paid on 30% of value of taxable service after exemption (abatement) of 70% as provided under the said Abatement Notification. Hence, question is arising What would be effective rate of Service Tax including SB Cess. Whether it would be leviable at 4.2% (i.e. 30% of 14%) + 0.5% = 4.7% or 30% of 14.5% = 4.35%? As per our understanding, it should be 4.35% as taxable value after abatement i.e. 30% for GTA Service for chargeability of Service Tax and SB Cess would be SAE in terms of sub-section (5) of Section 119 of the Finance Act, 2015, which states that the provisions of Chapter of the Finance Act, 1994 and the rules made there under, including those relating to refunds and 9
exemptions from tax, interest and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Swachh Bharat Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services under Chapter of the Finance Act, 1994 or the rules made there under, as the case may be. However, it is better that a proper clarification is issued in this regard. d) Treatment of SB Cess on ongoing transactions: With the Service tax rate (including SB Cess) of 14.5% becoming effective from November 15, 2015, there are chances of turmoil being faced by the service provider in respect of the ongoing transactions for which either certain advance payment is received prior to November 15, 2015 but the completion of provision of service may take place post November 15, 2015 or vice versa. Tussle between Rule 4 of the Point of Taxation Rules, 2011 and Section 67A of the Finance Act, 1994 will again crop up but, we are of the considered view that SB Cess should be levied on value of taxable services rendered on or after November 15, 2015. With the aim of r. Narendra odi s Government to introduce GST by April 1, 2016 wherein all the Cesses on goods and services will be subsumed under the GST, the logic of introducing such a levy under the banner of SB Cess just few months before, will definitely create hue and cry among the Trade. As SB Cess awaits its introduction, in days to come, an immediate detailed clarification on the various aspects of applicability of SB Cess and availability of its credit will surely be welcomed by the industry at large. Relevant Provisions pertaining to SB Cess in Chapter I of the Finance Act, 2015: THE FINANCE ACT, 2015 CHAPTER I SWACHH BHARAT CESS 119. (1) This Chapter shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint. (2) There shall be levied and collected in accordance with the provisions of this Chapter, a cess to be called the Swachh Bharat Cess, as service tax on all or any of the taxable services at the rate of two per cent. on the value of such services for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto. (3) The Swachh Bharat Cess leviable under sub-section (2) shall be in addition to any cess or service tax leviable on such taxable services under Chapter of the Finance Act, 1994 (32 of 1994), or under any other law for the time being in force. 10
(4) The proceeds of the Swachh Bharat Cess levied under sub-section (2) shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the Swachh Bharat Cess for such purposes specified in sub-section (2), as it may consider necessary. (5) The provisions of Chapter of the Finance Act, 1994 and the rules made there under, including those relating to refunds and exemptions from tax, interest and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Swachh Bharat Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services under Chapter of the Finance Act, 1994 or the rules made there under, as the case may be. (Author can be reached at Email: bimaljain@hotmail.com) CA Bimal Jain 11