NOVEMBER 08, 2015

By Aliasgar Husaini

THE Finance Minister Mr Arun Jaitley had in his budget speech of FY 15-16 said that "It is also proposed to have an enabling provision to levy Swachh Bharat Cess at a rate of 2% or less on all or certain services if need arises." It seems that the need has arisen for the tax payers to be a part of the Swachh Bharat movement and contribute towards the initiatives of the Narendra Modi led government towards Swachh Bharat.

The Ministry of Finance issued Notifications 21/2015-Service Tax and 22/2015-Service Tax on 6th November 2015 whereby it has appointed 15th November 2015 as the date from which Swachh Bharat Cess will be levied on all services except the ones that are either exempted or are not leviable to service tax. The rate of Swachh Bharat Cess is kept as 0.5% on the value of taxable service making the base rate of Service Tax + Swachh Bharat Cess 14.5%.

The timing of the introduction of Swachh Bharat Cess could not have been better with culmination of Bihar State Assembly Elections and Diwali festival being round the corner, the Government has given enough working days approx. 3-4 working days for the trade and industry to alter their IT systems to be geared up for the levy of Swachh Bharat Cess. When will the babus understand the importance of facilitating "ease of doing business in India"? It seems that the need for introduction of Swachh Bharat Cess was so urgent that it could not wait until 1 st January 2016 or at the most 1 st December, 2015 and it had to be introduced within a very short span and that too in the middle of the month!

The Swachh Bharat Cess of 0.5% will be levied on the value of taxable service unlike the earlier Education and Secondary and Higher Education Cess which were levied on service tax and not value of taxable service. Even though the rate of Education Cesses were 2% and 1% compared to 0.5% of Swachh Bharat Cess, the effective rate of Education Cesses was maximum of 0.36% when the service tax base rate was 12% which was lower than Swachh Bharat Cess of 0.5%. One can easily deduce that cost of education in India seems to be lower than the cost for cleanliness in India.

The trade and industry had just breathed a sigh of relief when the tax rate was aggregated and a single rate and accounting code was used for payment of service tax which had reduced the compliance burden of payment under multiple codes and maintenance of records of CENVAT Credit for tax and cess separately. This relief was short lived with the introduction of Swachh Bharat Cess within 6 months.

The Service Tax Rules, 1994 have not been updated to give the effect of introduction of Swachh Bharat Cess. Rule 6(7), (7A), (7B), (7C) of Service Tax Rules, 1994 where specific rates of service tax are specified for air travel, life insurance, foreign currency exchange and sale of lottery tickets respectively have not been updated to incorporate Swachh Bharat Cess. In case of Education Cesses it was easy since the Cess was levied on the value of service tax, however since Swachh Bharat Cess is levied on the value of taxable service it becomes difficult to arrive at the revised rate. In case of foreign currency exchange, the value of currency exchanged cannot be said to be value of taxable service and accordingly on what value should the Swachh Bharat Cess be levied?

The industry just came out from the hassles of dealing with rate change from 12.36% to 14% and within span of 5 months the whole scenario will be repeated. Especially for the services which are in the nature of continuous supply the issues will be magnified.

Similarly the CENVAT Credit Rules, 2004 have not been amended. This means that there is no clarity on whether CENVAT Credit will be available to service providers for the Swachh Bharat Cess paid by them on the input services used for providing output service. Further can CENVAT Credit availed on Service tax be used for payment of Swachh Bharat Cess?

There are a lot of unanswered questions hovering around the levy of Swachh Bharat Cess which the Ministry of Finance should address at the earliest since the time for implementation of Swachh Bharat Cess is only 3 working days away!

(The author is working as Manager-Indirect Tax with NMAH & CO, Chartered Accountants)