FEBRUARY 25, 2016

By Monarch Bhatt, Advocate

PRIME MINISTER has initiated "Swachh Bharat Abhiyan" on 02 nd October, 2014 and to meet the heavy expenditure on Swachh Bharat Abhiyan with effect from 15th November, 2015, Swachh Bharat Cess(SBC) has been imposed on all the taxable service at the rate of 0.5%. As per sub section (2) of section 119 of Chapter VI of Finance Act, 2015, SBC was imposed for the purpose of financing and promoting the Swachh Bharat Initiatives. The sub section (2) of section 119 reads as under.

"(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."

Hence as per the section, SBC has been imposed on all the taxable services to promote and finance the Swachh Bharat Abhiyan. Therefore, the issue arises whether services provided under Swachh Bharat Abhiyan are liable for the payment of service tax or not as if service tax is applicable,it also attracts SBC. In most of the cases, the services provided under Swachh Bharat Abhiyan are covered under the mega exemption notification. However, mainly on the following two aspects clarifications has been sought in this budget.

Case 1:

Many of the Municipal Corporations are floating tender for the collection and transportation of waste from roads, market, nullahs, etc. wherein, they ask the successful bidder to collect the garbage from each location and transport it to the dumping ground. Such activities are covered under the mega exemption notification 25/2012 under entry 25. The entry number 25 reads as under.

"25. Services provided to Government, a local authority or a governmental authority by way of -

(a) Water supply, public health, sanitation conservancy, solid waste management or slum improvement and upgradation; or

(b) …………………………………;"

Now, over the years of experience to get it cleaned thoroughly and to achieve the objective of Swachh Bharat Abhiyaan, in many of the cases municipality has started mentioning that to clean and carry out such activity of cleaning of roads, market, nullah, etc. successful bidder shall provide manpower on daily basis. For example: The successful bidder shall provide 100 manpower on daily basis and in the event of emergency or during festivals such as Ganpati, Durga Pooja, etc. they shall provide more manpower as per the requirement of municipality.

In such situation, though bidder is rendering the same services but as stipulated in the tender about the number of manpower to be provided, department is taking classification beneficial to them and considering it as "Manpower Supply Service" and denying the exemption granted under the mega exemption notification entry number 25.

Considering the objective of imposition of SBC and further since municipality cannot use such manpower for any other purposes, the dominant nature of the service remains same which is waste management service only and not liable for the payment of service tax. Therefore in this budget clarification has been sought on this.

Case 2:

In some of the cases, successful bidder is located in Mumbai and tender has been awarded by the Municipality of Jaipur or of any other state to carry out the activity there. In such cases, successful bidder sub-lets the entire work to another person located in that area for smooth compliance of the activity wherein, sub contractor bills to the successful bidder and in turns successful bidder bills to the municipality.

In such cases,there is no change in the nature of service to be provided to the municipality, only the change is instead of successful bidder rendering the services directly to municipality, entire services are provided through sub contractor wherein, the beneficiary of the service remains same i.e. municipality. The department is objecting and denying the exemption benefit to sub contractor as sub contractor has not rendered the services to municipality though beneficiary of the service is municipality.

The clarification has been sought to exempt such services provided by the sub contractor to bidder as service provided by the bidder to Municipality is exempted. In many other services such as in case of sub broker service, works contract service specific entry 29 has been provided to grant exemption from payment of service tax, if sub contractor is rendering the services to principal contractor and in turns services provided by principal contractor are exempted from the payment of service tax. If the clarification regarding the exemption has not been provided in such cases, ultimately service tax and SBC gets added on the services provided under Swachh Bharat Abhiyaan which is not the intention of the legislature.