NOVEMBER 08, 2015

By S Sivakumar, LL.B, FCA, FCS, ACSI, MBA, Advocate

THE Government seems to have taken everybody by an unpleasant surprise, by announcing the introduction of the Swachh Bharat Cess (‘SBC') at the rate of 0.5% on all taxable services, with effect from November 15, 2015, which incidentally, is a Sunday. TIOL had carried the text of Notifications 21/2015 and 22/2015, as usual, with lightning speed.

Most of us felt that the SBC would be levied only on a select band of services.

Be that as it may….

The fact that the SBC is getting introduced with effect from November 15, 2015 could mean that the service providers would have to be clear with their arithmetic, vis-à-vis the SBC. Thus, in the case of a monthly invoice to be raised for November 2015, the service provider would have to work out the SBC only for the 16 days representing the period November 16 to 30, 2015. Thus, the effective SBC for November 2015 would be 0.267% on the monthly value of services rendered for November 2015.

In terms of services where abatement is availed (eg. Short term accommodation services, etc), the SBC would be applicable on the value attributable to the ‘service element'. Thus, in the case of short term accommodation services, the SBC would be applicable on 60% of the value of services. Similar would be the logic in the case of a works contractor who has opted to pay service tax under Rule 2A of the Service Tax (Determination of Value) Rules, 2006.

In terms of the Point of Taxation Rules, no SBC would be leviable in cases where the service is rendered prior to 15-11-2015 and the invoice is raised prior to 15-11-2015 and when the service is rendered prior to 15-11-2015 and the payment is also received prior to 15-11-2015 despite that the invoice might be raised on or after 15-11-2015. Similarly, when the invoice is raised prior to 15-11-2015 and the payment is received prior to 15-11-2015, there would be no SBC even if the service is rendered on or after 15-11-2015, in this case.

Of course, the SBC would also be applicable on the service tax payable under the reverse charge mechanism as well.

Taking this discussion forward…. the big problem for the service providers and especially the corporates would be to change their accounting systems to provide for SBC to be separately shown in the invoices. This could be a big issue for the big corporates using ERP packages like SAP, etc. Merging the SBC with the service tax rate and increasing the service tax rate to 14.5% would be a hugely welcome business friendly step from the Government, but this seems unlikely.

The earlier Government had collected thousands of crores of rupees as primary and secondary education cesses. Nobody has a clue as to how this money had been actually spent. The SBC is very likely to meet a similar fate.

The other issue, of course, is that, it seems that cenvat credit of the SBC paid on input services might not be applicable, after all. This could very unfair, especially, at a time when the Central Government is trying to get GST implemented, under which, all taxes and cesses are expected to be cenvatable.

On a larger issue… is levying SBC only on services justified? Does the Government think that the salary earners, who are the largest consumers of services, should be squeezed further by levying SBC. The effective difference between the overall central excise duty and service tax is now, a hefty 2%, which seems unjustified.

Before concluding…

Would the heavens fall if the Government levies SBC with effect from December 1, 2015. Why is the Government harassing the assessees by bringing in the SBC from the middle of the month?

With GST around the corner, as the Government would seem to claim, where is the tearing hurry to introduce the SBC? With service tax collections during FY 2015-16 being pegged at around Rs 2,10,000- crores, the annual targeted collection of SBC could be around Rs 1,049 crores and the target for the November 15, 2015 to March 31, 2016 could be only around Rs 450 crores. This is obviously not a gargantuan amount but certainly can bring hordes of disputes. Why this tearing hurry then?

So also, being a cess, the SBC would not get shared with the States. Would the States then levy SBC on their VAT collections and do their bit?