Tuesday, November 10, 2015

Levy of Swachh Bharat Cess @ 0.5% on value of all taxable services from November 15, 2015




After the Hon’ble President had given assent to the Finance Bill, 2015 on May 14, 2015, the Ministry of Finance, Department of Revenue vide Notification No. 14/2015-ST dated May 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 VI) 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:

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. 
  • Mega Exempted Services vide Notification No. 25/2012-ST dated June 20, 2012.
  • Services exempted as specified to certain extent under the Abatement Notification No. 26/2012-ST dated June 20, 2012

Immediate clarification required 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.’. 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 Manufacturer 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?

If no credit is made available, it would directly add to the cost of goods and services. In case of export of goods or services, exporter would not be entitled for refund 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 SAME in terms of sub-section (5) of Section 119 of the Finance Act, 2015, which states that “the provisions of Chapter V 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 V 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 by the CBEC.
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.

e) Implication of SB Cess on services specified under Rule 6 of Service Tax Rules, 1994: Implication of SB Cess while computing Service tax on services specified under Rule 6 of the Service Tax Rules, 1994 namely air travel agent, insurance premium, purchase and sale of foreign currency needs to be clarified as there is no specific exemption for such services.

Other important points for immediate digest:
a) No SB Cess on goods: SB Cess is levied under Chapter VI of the Finance Act, 1994 and is applicable only on provision of taxable services. Hence, no SB Cess shall be imposed on the goods manufactured.

b) Computation of tax under Works contract: In terms of Rule 2A of the Service Tax (Determination of Value) Rules, 2006, tax needs to be applied on the value so arrived at the rate of 14.5%. Accordingly, effective rate of tax would be as under:
  • In case of original works: 5.8% (14.5%*40%); and
  • Other than original works: 10.15% (14.5%*70%)
c) Computation of tax on Restaurant and Outdoor catering services: In terms of Rule 2C of the Service Tax (Determination of Value) Rules, 2006, tax needs to be applied on the value so arrived at the rate of 14.5%. Accordingly, effective rate of tax would be as under:
  • In case of Restaurant services: 5.8% (14.5%*40%); and
  • In case of Outdoor catering services: 8.7% (14.5%*60%)
d) Computation of tax under Reverse Charge Mechanism: SB cess along with Service tax shall be paid on services under Reverse Charge Mechanism as SB Cess is applicable on all taxable services.

e) SB Cess to be charged and shown separately in Invoice: SB Cess would be over and above the present 14% Service tax rate. Hence, SB Cess 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 head which may be notified separately.

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.

Read Also
Swachh Bharat Cess - Service Tax Notification

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CLARIFICATIONS GIVEN BY CENTRAL GOVERNMENT ON SWACHH BHARAT CESS.

Please find below the summarized points of FAQs on Swachh Bharat Cess (SBC) issued by Central Board of Excise and Customs, New Delhi..

1. Swachh Bharat Cess (SBC) shall be levied and collected as Service Tax on all the Taxable Services at the rate of 0.5% of the value of Taxable Service.

2. The Government of India has appointed 15th day of November’2015 as the date from which the provisions of Swachh Bharat Cess  (SBC) would  come into effect.

3. SBC is not leviable on services which are fully exempt from service tax or those covered under the Negative List of Services.

4. SBC has been imposed for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.

5. Amounts collected on account of SBC will be credited to the Consolidated Fund of India and will be used for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.

6. SBC would be levied on the same taxable value on which Service Tax is calculated.

7. SBC has to be charged separately on the invoice, accounted for separately in the books of account and paid separately under separate accounting code which would be notified shortly by the CBEC. SBC may be charged separately after Service Tax as a different line item in invoice.  It can be accounted and treated similarly to Education Cesses.

8. For payment of SBC, a separate accounting code would be notified shortly in consultation with the Principal Chief Controller of Accounts.  These are as follows:

Tax Collection: 0044-00-506
Other Receipts: 00441493
Penalties: 00441494
Deduct: 00441496
Refunds: 00441495

9. Effective rate of Service Tax plus SBC, from 15-11-2015, would be 14%+5% = 14.5%.

10. SBC is not a cess on Service Tax. It shall be levied @ 0.5% on the value of Taxable Services.

11. Scope of SBC: The Central Government was empowered to impose SBC either on all or some of the Taxable Services. The Govt. of India had notified vide notification No:22/2015-ST dated 06-11-2015 that SBC shall be applicable on all taxable services except services which are either fully exempt from service tax under any notification issued under Section 93(1) of the Finance Act,1994or are otherwise not leviable to service tax under section 66B of the Finance Act,1994.

12. In case of Reverse Charge under Section 68(2) of the Finance Act,1994, the liability has been shifted from service provider to the  service receiver.  As per Section 119 (5) of the Finance Act,2015, the provision of Chapter V  of the Finance Act,1994 and the rules made there under are applicable to SBC also. Thus, the Reverse Charge under section 68 (2) of the Finance Act,1994, is made applicable to SBC.

13. Abatement: Taxable Services on which service tax is leviable on a certain percentage of value of taxable service, will attract SBC on the abated percentage of value as provided in the abatement notification.

For example, in the case of GTA,  service tax + SBC (14%+5%) would  be on 30% of total taxable value i.e, 14%+5% * 30% = 4.35%  i.e, 4.2% + 0.15%. 

14. CENVAT: SBC is not integrated in the Cenvat Credit chain. Hence, the credit of SBC cannot be availed. Further, SBC cannot be paid by utilizing credit of any other tax or duty. The SBC, therefore, has to be paid in cash only.

15. As regards Point of Taxation, as SBC is a new levy, which was not in existence earlier, the provisions of Rule 5 of the Point of Taxation Rules would be applicable.

NO SWACHH BHARAT CESS

  • In cases where payment has been received and invoice is raised before the service becomes taxable, i.e, earlier to 15-11-2015, there is no liability of SBC.
  • In cases where payment has been received before the service became taxable and invoice is raised within 14 days i.e, upto 29-11-2015, then also no liability of SBC arises.

SWACHH BHARAT CESS APPLY:

  • SBC will be payable on services which are provided on or after 15-11-2015, invoice in respect of which issued on or after that date and payment is also received on or after that date.
  • SBC will also be payable where service is provided on or after 15-11-2015, but payment is received prior to that date and invoice in respect of service is not issued by 29-11-2015 i.e, invoice issued after 14 days of the appointed date of imposition of SBC.

16. For Services covered by Rule 2A, 2B or 2C of Service Tax (Determination of Value) Rules, 2006 effective rate of Service Tax plus SBC under the Works Contracts Service in case of:

  • Original Works would be 5.8%  i.e, 40% of 14% + 5% ;
  • Other than Original Works would be 10.15%  i.e. 70%  of 14%+5%.
  • The treatment of Restaurant services would be similar to that of Original Works under Works Contract services. The effective rate would be 5.8%  i.e, 40% of 14% + 5% .
  • Effective rate of SBC in case of Outdoor Caterer would be 8.7%  i.e, 60% of 14% + 5%.

17. In respect of Travel Agents, Life Insurance premiums, forex transactions and services by lottery distributors/selling agents shall have the option to SBC on alternate rates provided Sub-Rules 7, 7A,7B or 7C under Rule 6 of Service Tax Rules,1994 as per the formula noted hereunder:

Service Tax liability calculated as per Rule 6 (7), (7A), (7B) or (7C) x 0.5 % / 14%.

18. SBC liability in case of Reverse Charge Services where Services have been received prior to  15-11-2015 but consideration paid post 15-11-2015  is determined in accordance with Rule 7 of Point of Taxation Rules, as per which Point of Taxation is the date on which consideration if paid to the Service Provider.  Thus the SBC liability would be as under:

0.5%  x Value of Taxable Services.

19. As SBC is not integrated in the Cenvat Credit Chain and reversal under Rule 6 is payment of amount to 7 % of the value of exempted services, reversal of SBC is, therefore, not required under Rule 6 of CCRs, 2004.

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