Swachh Bharat Cess - Carifications cometh
NOVEMBER 19, 2015
By Parag Mehta, CA
LEVY of SBC:
The Government assumed power vide Finance Act, 2015 to levy Swachh Bharat Cess ("SBC") at the rate of 2 % on value of all or specified taxable services. The date for levying the SBC was not notified by the authorities.
The government notified 15th November 2015 (Sunday) as the date from which SBC will be applicable (Notification No 21/2015 dated 06.11.2015). Expectations were that government would not levy the said cess on all the services. However, the said cess has been levied on all taxable services. The only solace is that SBC has been levied at 0.5 % of value of all taxable services (Notification No 22/2015 dated 06.11.2015).
As usual, the said SBC was caught up in interpretational issues as to the value of cess on abated services, alternative rates of taxes, Reverse charge Mechanism (RCM), Point of Taxation (POT) etc.
Thankfully, the authorities have issued Notification No 23/2015, 24/2015, 25/2015 dated 12.11.2015 and Press Release dated 12.11.2015 clarifying various issues. However the issue of Cenvat credit is still not resolved.
Applicability of SBC on Services with Alternative Rates of tax (Notification No 25/2015 dated 12.11.2015):
Service tax is applicable at alternative rates (fixed and percentage) on various services like Air Travel Agent, Life Insurance Services, services in relation to sale/purchase of foreign exchange and service by lottery distributors/selling agents. Option has been given for levying SBC on alternate rates. The formula to calculate SBC is specified as under:
SBC = Service Tax Liability (at the alternate rate) X 0.5/14
The SBC and effective tax applicable for various services is tabulated as under:
|
Category of Service
|
Rule (Service Tax Rules, 1994)
|
Value of Taxable Service
|
Rate of Service Tax
|
Service Tax Payable
|
Applicable Swachh Bharat Cess (SBC)
|
Total Tax Payable including SBC
|
|
Air Travel Agent Services
|
6 (7)
- Domestic Booking
- International Booking
|
50,000/-
50,000/-
|
0.70 % of Basic Fare
1.40 % of Basic Fare
|
350/-
700/-
|
12.50/-
(350*0.5/14)
25/-
(700*0.5/14)
|
362.50/-
725/-
|
|
Life Insurance Services
|
6(7A)
- Gross Premium (-) allocation of investment
- Other Cases – First Premium
- Other Cases – Subsequent Premium
|
Gross : 10,000
(-) Inv : 9,000
---------
Taxable 1,000
10,000
10,000
|
14 % on 1,000/-
3.50 % of Premium
1.75 % of Premium
|
140
350/-
175/-
|
5 (.50 % of 1,000)
12.50/-
(350*0.5/14)
6.25
(175*.5/14)
|
145
362.50/-
181.25/-
|
|
Purchase of Sale of Foreign Exchange
|
6(7B)
- UptoRs. 1 lakh
- Exceeding Rs. 1 lakhand uptoRs. 10 lakhs
- Exceeding Rs. 10 lakhs
|
95,000
9,50,000
25,00,000
|
0.14 % of the amount (Min Rs. 35/-)
Rs. 140/- (upto 1 lakh) and 0.07 % for amount between 1 lakh and10 lakhs
Rs. 770/- upto 10 lakhs and 0.014 % for amount exceeding 10 lakhs (Max Rs. 7,000/-)
|
133/-
735/-
980/-
|
4.75
(133*.5/14)
26.25
(735*.5/14)
35
(980*.5/14)
|
137.75
761.25
1,015/-
|
|
Lottery distributors/Selling agents
|
6(7C)
- Guaranteed Prize payout is more than 80 %
- Guaranteed Prize payout is less than 80 %
|
10,00,000/-
10,00,000/-
|
8,200/- for every 10 lakhs (or part) of aggregate face value of lottery tickets.
12,800/- for every 10 lakhs (or part) of aggregate face value of lottery tickets.
|
8,200/-
12,800/-
|
292.85
(8,200*.5/14)
457.15
(12,800*.5/14)
|
8,492.85
13,257.15
|
Applicability of SBC on abated Services (Notification No 23/2015 dated 12.11.2015):
There was confusion on applicability of SBC on Gross Value of Services or Taxable Value of Services (i.e after abatement). It has been clarified that SBC will be applicable on the abated value of services. The table containing the effective tax rate is shown as under:
|
Category of Service
|
Taxable Percentage as per Notification No 26/2012
|
Effective rate of Service Tax on Gross Value
|
Effective rate of SBC on Gross Value
|
Effective Rate of Tax (Including SBC)
|
|
Services in relation to financial leasing including hire purchase
|
10%
|
1.40%
|
0.05%
(0.50*10/100)
|
1.45%
|
|
Transport of goods by rail
|
30%
|
4.20%
|
0.15%
(0.50*30/100)
|
4.35%
|
|
Transport of passengers by rail
|
30%
|
4.20%
|
0.15%
(0.50*30/100)
|
4.35%
|
|
Banquet services
|
70%
|
9.80%
|
0.35%
(0.50*70/100)
|
10.15%
|
|
Air travel of passengers in:
a) Economy Class
b) Other than economy class
|
40%
60%
|
5.60%
8.40%
|
0.20%
(0.50*40/100)
0.30%
(0.50*60/100)
|
5.80%
8.70%
|
|
Renting of hotels, etc.
|
60%
|
8.40%
|
0.30%
(0.50*60/100)
|
8.70%
|
|
GTA services
|
30%
|
4.20%
|
0.15%
(0.50*30/100)
|
4.35%
|
|
Renting of motor cab
|
40%
|
5.60%
|
0.20%
(0.50*40/100)
|
5.80%
|
|
Transport of passengers by:
a) contract carriage other than motorcab
b) radio taxi
|
40%
|
5.60%
|
0.20%
(0.50*40/100)
|
5.80%
|
|
Transport of goods in a vessel
|
30%
|
4.20%
|
0.15%
(0.50*30/100)
|
4.35%
|
|
Services by a tour operator in relation to,-
(i) a package tour
(ii) a tour, if the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour
(iii) any services other than specified at (i) and (ii) above.
|
25%
10%
40%
|
3.50%
1.40%
5.60%
|
0.125%
(0.50*25/100)
0.05%
(0.50*10/100)
0.20%
(0.50*40/100)
|
3.625%
1.45%
5.80%
|
|
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
b) for other than (a) above
|
25%
30%
|
3.50%
4.20%
|
0.125%
(0.50*25/100)
0.15%
(0.50*30/100)
|
3.625%
4.35%
|
Applicability of SBC on Valuation determined as per Service Tax (Determination of Value) Rules, 2006 (Notification No 23/2015 dated 12.11.2015):
There was confusion on applicability of SBC on Gross Value of Services or Taxable Value of Services as per Service Tax (Determination of Value) Rules, 2006. It has been clarified that SBC will be applicable on the value as determined in accordance with the Service Tax (Determination of Value) Rules, 2006. The table containing the effective tax rate is shown as under:
|
Valuation Rule of Service Tax (Determination of Value) Rules,2006
|
Service
|
Taxable Value of service
|
Service tax
|
SBC
|
Effective Rate including SBC
|
|
2A(ii)(A)
|
Original Works
|
40% of Gross value
|
5.60% ( 40% * 14 %)
|
0.20% (0.5% * 40%)
|
5.80%
|
|
2A(ii)(B)
|
Other Works
|
70% of Gross value
|
9.80% (70 % * 14%)
|
0.35% (0.5% * 70%)
|
10.15%
|
|
2B
|
Money Changer
|
Valuation as per Rule
|
14%
|
0.5%
|
14.50%
|
|
2C
|
Restaurant Services
|
40% of gross value
|
5.60% (40% * 14%)
|
0.20% (0.5% * 40%)
|
5.80%
|
|
2C
|
Outdoor Catering Services
|
60% of gross value
|
8.40% (40% * 14%)
|
0.30% (0.5% * 60%)
|
8.70%
|
Applicability of SBC on services covered under Reverse Charge Mechanism (Notification No 24/2015 dated 12.11.2015):
It has also been clarified that SBC will be applicable on service tax paid under Reverse Charge Basis also. The table containing the effective tax rate payable under Reverse charge mechanism is as under:
|
Nature of Service
|
Service provider
|
Service recipient
|
Liability of Service Provider (Including SBC)
|
Liability of Service Receiver (Including SBC)
|
|
Insurance Agent Services
|
Insurance Agent
|
Insurance Company
|
Nil
|
100 %
(14.50%)
|
|
Recovery agency services
|
Recovery Agent
|
Banking company, financial institution, NBFC
|
Nil
|
100%
(14.50%)
|
|
Agency or Distribution Service
|
Mutual Fund Agent or Distributor
|
Mutual Fund or AMC
|
Nil
|
100%
(14.50%)
|
|
Selling or Marketing of Lottery tickets
|
Selling or Marketing agent of Lottery
|
Lottery Distributor or Selling Agent
|
Nil
|
100%
(14.50%)
|
|
GTA services
|
Goods transport agency
|
Specified persons paying freight or liable to pay the freight
|
Nil
|
100%
(4.35%)
|
|
Sponsorship Services
|
Any person
|
Any body corporate or partnership firm located in taxable territory
|
Nil
|
100%
(14.50%)
|
|
Arbitration services
|
Arbitral tribunal
|
Business entity located in taxable territory
|
Nil
|
100%
(14.50%)
|
|
Legal services
|
Individual advocate/ firm of advocates
|
Business entity located in taxable territory
|
Nil
|
100%
(14.50%)
|
|
Specified support services
|
Government or local authority
|
Business entity located in taxable territory
|
Nil
|
100%
(14.50%)
|
|
Director’s services
|
Director of a company
|
Company
|
Nil
|
100%
(14.50%)
|
|
Rent-a-cab (abatement availed)
|
Non-corporate entity not engaged in same business
|
Business entity (registered as a body corporate) in taxable territory
|
Nil
|
100%
(5.80%)
|
|
Rent-a-cab (abatement not availed)
|
Non-corporate entity not engaged in same business
|
Business entity (registered as a body corporate) in taxable territory
|
50%
(7.25%)
|
50%
(7.25%)
|
|
Supply of manpower
|
Non-corporate entity
|
Business entity (registered as a body corporate) in taxable territory
|
Nil
|
100%
(14.50%)
|
|
or security services
|
|
Works Contract
|
Non-corporate entity
|
Business entity registered as body corporate located in taxable territory
|
50%
|
50%
|
|
- Original Works
|
(2.90%)
|
(2.90%)
|
|
- Other Works
|
(5.075%)
|
(5.075%)
|
|
Any service availed from person located outside India (Import of service)
|
Person in non-taxable territory
|
Person in taxable territory (other than Government, specified charitable trust and individual for non-business purpose)
|
Nil
|
100%
(14.50%)
|
|
Aggregator Services
|
Service Providers Providing Service under the name of a Brand
|
Aggregator or Representative of Aggregator or Agent of Aggregator
|
Nil
|
100%
(14.50%)
|
Point of Taxation of SBC for Service Provider:
Confusion as to applicability of Rule 3, 4 or 5 of Point of Taxation Rules, 2011 (POTR). The said confusion has been done away with. It has been clarified that said services will be covered under Rule 5 of POTR (Authors view is that the same should be covered u/r 3 of POTR). However, we go by the clarification issued by the department. As per Rule 5 of POTR, where a service is taxed for the first time, then :
- No tax shall be payable to the extent the invoice which has been issued and the payment received against such invoice before such service becomes taxable; (In case where payment has been received and invoice is raised before the service becomes taxable, i.e., prior to 15th November, 2015, there is no lability of SBC)
- No tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within 14 days of the date when the service is taxed for the first time. (In case payment has been received before the service became taxable and invoice is raised within 14 days, i.e. upto 29th November, 2015, even then the service tax liability does not arise. SBC will be payable on services which are provided on or after 15th Nov, 2015, invoice in respect of which is 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 15th Nov, 2015 but payment is received prior to that date and invoice in respect of such service is not issued by 29th Nov, 2015.)
Conclusion:
Notification No 23 /2015, 24/2015 & 25 /2015 dated 12.11.2015 alongwith Press release dated 12.11.2015 has laid to rest various issues foreseen by legal experts. However as per Cenvat Credit Rules, SBC is not cenvatable as on date. To avoid the cascading effect of SBC, necessary amendments in CCR, Rules 2004 should be carried out at the earliest.
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