The Swachh Bharat mission is a large-scale movement initiated in October, 2014, with the objective of delivering a clean India. To give wings to this vision, the Government of India initiated a tax known as ‘Swachh Bharat Cess’ at 0.5% on all taxable services to fund Swachh Bharat initiatives. Consequently, the service tax rate including the Swachh Bharat Cess stands at 14.50%. The Cess became effective from November 15th, 2015 and is collected as per provisions of Chapter VI (Section 119) of the Finance Act, 2015. With the implementation of GST from 1st July 2017, Swachh Bharat Cess in not applicable any more.
It should be noted that the cess for Swachh Bharat was levied only on those services that are not exempt from service tax.
Services: The Swachh Bharat Cess is applicable on services such as air-conditioned restaurants, road and rail services, insurance premiums and lottery services among others
Utilization: The proceeds of the Swachh Bharat Cess are pooled into the Consolidated Fund of India for efficient utilisation to promote the Swachh Bharat movement.
Invoice: The Swachh Bharat Cess is charged as a separate item in an invoice. The concerned cess is levied using a specific accounting code which has a separate account.
Rate: The Swachh Bharat Cess is not calculated on service tax per service, but on the taxable value of a service. The cess is applied at 0.5% on the value of services which are taxable.
Taxable Services: As per government notification, Swachh Bharat Cess is applicable on taxable services except those which are fully exempt from service tax.
Reverse Charge: As per section 119(5) of the Finance Act, 2015 and Chapter V of the Finance Act, 1994, reverse charge (notification no.30/2012) will apply for the levy of the Swachh Bharat Cess. Rule 7 in the taxation rules states that the point of taxation is when the service provider receives the due amount.
Cenvat Credit: The Swachh Bharat Cess is not integrated in the Cenvat Credit Chain. This means that the Swachh Bharat Cess cannot come in as credit from another tax.
Calculation: Swachh Bharat Cess is based on the value as per Service Tax (Determination of Value) Rules, 2006. The Cess in light of the related services of food or restaurant or joint, with AC Cooling, is calculated at 0.5% of the 40% of the full amount.
Refund: SEZ Units are entitled to refund the Swachh Bharat Cess paid on specific services
Point of Taxation:
Taxation Scenario:
There is no lability of Swachh Bharat Cess in cases where invoice is raised prior to 15th November, 2015.
The Swachh Bharat Cess will be levied on services provided on or after November 15th, 2015 (invoice and payments which are issued and received on or after the said date)
Swachh Bharat Cess will be levied on services offered on or after November 15th, 2015 even if the payment is received before the said date and invoice is not issued by November 29th, 2015
Swacch Bharat can only be applied on taxable services.
This Cess is applicable w.e.f. 15.11.2015
Swacch Bharat is applicable on the service’s value, with effective service taxes at around 14.5% from 15.11.2015.
Swacch Bharat is not applicable on non-taxable services as the exempted services.
The cess invoice disclosure and payment has to be separate.
SBC is also to be paid in cases where liability of payment of service tax is on the service receiver. Vide notification No. 24/2015-ST, dated 12.11.2015, the Government has prescribed that the Notification No. 30/2012 – Service Tax, dated 20.06.2012 is also applicable for the purposes of SBC.
There are several taxable services where optional method of payment of service tax is available in terms of Rule 6 of Service Tax Rules, 1994. These are available in respect of,-
services of booking of tickets for travel by air (Ref: Sub-Rule (7) of Rule 6 )
life insurance (Ref: Sub-Rule (7A) of Rule 6 ),
purchase & sale of Foreign Currency including money changing (Ref: Sub-Rule (7B) of Rule 6); and
distributor or selling agent of promotion, marketing organizing or in any other matter assisting in organising lottery (Ref: Sub-Rule (7C) of Rule 6).
Vide notification No. 25/2015-ST, dated 12.11.2015, the Government has amended the Service Tax Rules, 1994 and added another sub-rule (7D) to the Rule 6 of the Service Tax Rules, 1994. This sub-rule (7D) provides that where person liable to pay service tax in respect of taxable services mentioned above has opted for payment in term of aforesaid rules, then in such cases, SBC is to be calculated by way of multiplying total service tax liability by 0.5 and dividing the product by 14, during any calendar month or the quarter, as the case may be. This notification has also been made effective with effect from 15.11.2015.
Another important issue relating to SBC is regarding availability of CENVAT credit of SBC and also payment of SBC out of accumulated CENVAT credit. Vide notification No. 2/2016–CE (NT) dated 03.02.2016, the Government has amended the CENVAT Credit Rules providing that credit of any duty specified in sub-rule (1) of Rule (3) of CENVAT credit Rules cannot be utilized for the payment of SBC. Further, CENVAT credit of SBC is not available as it is not a specified duty eligible for CENVAT Credit in the CENVAT credit Rules, hence no credit can be availed of SBC.
Since SBC is not part of CENVAT Chain, SBC is not required to be paid where a service provider, who is engaged in providing both taxable & exempted services and has opted for not to maintain separate accounts, is required to reverse 7% of value of exempted services
Swacch Bharat cess will be applied and gathered as per the Chapter VI provisions of the Finance Act, 2015. This will be a service tax applied on most taxable services @0.5% of the value of taxable service.
15th day of November, 2015 was the date since when Swachh Bharat Cess has been initiated to effect via notification No.21/2015-Service Tax.
Is Swachh Bharat Cess applicable on exempted services/ negative list services?
Swachh Bharat Cess not applicable on tax exempted services and those that come under the negative services list.
Swachh Bharat cess will not be applicable in the following scenarios-When payment has been received and invoice is raised before the service becomes taxable, i.e., prior to 15th November, 2015.
When payment is received before 15th November, 2015 and invoice is presented within 2 weeks of new service tax including up to 29th November, 2015.
Here, Swachh Bharat cess shall be levied and collected in accordance with the provisions of this Chapter, as service tax on all or any of the taxable services at the rate of 2 % of the service’s value for the purposes of financing and promoting Swachh Bharat initiatives or related issue.
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