NOVEMBER 23, 2015

By Bharat Bhushan, Advocate

BY Chapter VI of the Budget 2015, Enabling Provisions were incorporated for levy of Swatch Bharat Cess, on Services, upto 2%. The provisions contained in the said chapter are reproduced below:-

"CHAPTER VI

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 V of the Finance Act, 1994, or under any other law for the time being in force.

(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 V of the Finance Act, 1994 and the rules made thereunder, 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 thereunder, as the case may be."

Thus, the legal provisions under Service Tax law have been extended to Swatch Bharat Cess. This is a common practice in drafting statute, whereby the provisions of an existing enactment are incorporated in a later statute. A well settled legal proposition on such incorporation is referred below:-

"If a subsequent Act brings into itself by reference some of the clauses of a former Act, the legal effect of that, as has often been held, is to write those sections into the new Act just as if they had been actually written in it with the pen or printed in it, and, the moment you have those clauses in the later Act, you have no occasion to refer to the former Act at all."

(Per Lord Esher, M.R. in In/re Wood's Estate (1886) 31 Ch. D. 607/615).

In TVS Motor Co. Ltd. Vs. Union of India - 2015-TIOL-1478-HC-KAR-CX the issue before the Hon'ble High Court of Karnataka was, whether the manufacturer was entitled to refund on Automobile Cess on Motor Vehicles exported out of India, under Notification 19/2004-CE(NT) issued under Rule 18 of the Central Excise Rules, 2002. The refund was denied on the ground that the Automobile Cess was not enumerated in the said Notification as a duty, for the purpose of the said Notification.

The Hon'ble High Court found that that Rule 3 of the Automobile Cess Rules provides for that issues relating to refund of duty shall be applicable to the  levy and collection  of Cess. Since the provisions of Central Excise Act, 1944 would apply to the Cess collected consequent to being characterized as duty of excise, any reference in the Central Excise Act would also include a reference to the Cess collected as duty of excise. Accordingly, the Hon'ble High Court held that the Automobile Cess is refundable to the manufacturer even when the same is not mentioned in the said Notification.

Again in CCE, Belgaum Vs. Shree Renuka Sugars Ltd., - 2014-TIOL-98-HC-KAR-CX the issue before the Hon'ble High Court of Karnataka was whether the party was eligible to avail CENVAT Credit of Suger Cess paid on Importer Raw Sugar under Sugar Cess Act, 1982. In that case also, the provisions of Central Excise Act, 1944 and rules made there under were made applicable to the Sugar Cess. The taxes and duties, on which CENVAT Credit is available are enumerated in the CENVAT Credit Rules, 2004. Sugar Cess is not mentioned therein and hence the revenue proposed to deny the Credit. The Hon'ble High Court found that the Sugar Cess is nothing but a duty of Excise and as per Rule 3 of the CENVAT Credit Rules, credit of the duties of excise paid are available.

In case of Swatch Bharat Cess, the facts are identical to the facts in Renuka Sugar (Supra) case. As per Rule 3 of the CENVAT Credit Rules, 2004, Service Tax paid on the input Services are available for availing CENVAT Credit. Sub-rule (4) of Rule 3 further provides that the CENVAT Credit can be utilised for payment of Service Tax on output services. From the legal Provisions contained in Section 119(2) of the Finance Act, 2015, as reproduced above, it is clear Swatch Bharat Cess is nothing but Service Tax. Therefore, it appears, that not only the Swatch Bharat Cess paid on input Services is available as CENVAT Credit, but also it can be paid from available CENVAT Credit.

It is also pertinent to mention here that the CENVAT Credit Rules, 2004 are notified under Section 94 of the Finance Act, 1994, which confers rule making power on the executive for proper implimation of levy, and not under Section 93, which empowers the Central Government to grant exemption from Service Tax. Therefore, it can be safely concluded that the CENVAT Credit Rules, 2004 are not any exemption from Service Tax, but a mechanism for measurement of liability by giving due credit to the taxes already paid. The provisions in respect of 'levy and collection' of Service Tax has been extended to Swatch Bharat Cess.

The Hon'ble Supreme Court in Ujagar Prints Vs. Union Of India, - 2002-TIOL-01-SC-CX held that the term 'levy' is of wide impart and it includes both imposition of tax as well as its quantification and assessment. As already discussed, the CENVAT Rules are notified for quantification of levy and hence, they are equally applicable to Swatch Bharat Cess as to the Service Tax.

However, the recent clarifications from Ministry of Finance have stated that neither the Credit of Swatch Bharat Cess is available not it can be paid from CENVAT Credit, as the Swatch Bharat Cess is yet not integrated in CENVAT Credit Chain The said clarification runs contrary to the above discussions. It is certain that the said clarification will certainly culminate in host of avoidable litigations, whatever the result thereof. This is certainly in contrast of the manifested policy "Ease of Doing Business.". The simple way of avoiding these litigations is appropriately amending the CENVAT Credit Rules, 2004 to clearly demonstrate the intent of Govt. whatever it may be.

It is also felt that keeping Swatch Bharat Cess out of CENVAT Chain is again contrary to the policies of Government in two ways. Firstly, of avoiding cascading effect of duties. The Government is striving hard to bring GST in, with this aim in eye. Secondly, it tilts balance in favour of big business houses in service industries, who have necessary infrastructure for in house provision of input services and against the small independent service providers.