Introduction

A campaign by the name of  “Swachh Bharat Abhiyan” was launched on 2nd October, 2014, to accomplish the vision of a ‘Clean India’ by 2nd October 2019, the 150th birthday of Mahatma Gandhi. This being one of the pet projects of Prime Minister Narendra Modi, in the Finance Act, 2015, many benefits were introduced to promote this mission.  Any income received by a person on behalf of the Swachh Bharat Kosh or the Clean Ganga Fund set up by the Central Government has been exempted. Also, Swachh Bharat Kosh has been added to the list of institutions, contribution to which is eligible for 100% deduction u/s 80G of the Income Tax Act.

In furtherance of NDA Government’s commitment towards ‘Clean India’, Swachh Bharat Cess has been introduced with effect from 15th November, 2015. Swachh Bharat cess is not another tax but a step towards involving each and every citizen in making contribution to Swachh Bharat. The government plans to use proceeds from this cess exclusively for Swachh Bharat initiatives.

This article shall provide you with an overview of the legal provisions as well as the clarifications issued for Swachh Bharat Cess .

What is Swachh Bharat Cess (“SBC”)?

1. It is a Cess which shall be levied and collected as service tax on all the taxable services at the rate of 0.5% of the value of taxable service. Though the government has Parliament’s nod to levy upto 2% as SBC, the rate is notified at 0.5%. The SBC shall be in addition to any cess or service tax leviable on such taxable services.
2. The SBC shall be leviable only on taxable services. It shall not apply to services that are fully exempt from service tax or those covered under the negative list of services.

Applicable from

The SBC has been made applicable from 15th November, 2015.

Effective Rate of Tax on Services

Unlike the Education Cess and SHEC, which were a cess on the Service Tax, the SBC is a cess on the value of taxable service. Hence SBC will be charged at the rate of 0.5% of the value of taxable service. The effective rate of Service Tax after including the SBC shall be 14.5% of the value of taxable service.

Point of taxation

1. Where payment has been received and invoice is raised before the service becomes taxable, i.e. prior to 15th November, 2015 – No liability of SBC.
2. Where payment has been received before the service became taxable and invoice is raised within 14 days, i.e. upto 29th November, 2015 – No liability of SBC.
3. Where services are provided on or after 15th November, 2015, invoice in respect of such services is issued on or after that date and payment is also received on or after that date – SBC will be payable.
4. Where service is provided on or after 15th November, 2015 but payment is received prior to that date and invoice in respect of such service is not issued by 29th November, 2015 – SBC will be payable.
5. In case of reverse charge services, where services have been received prior to 15th November, 2015 but consideration has been paid post such date – SBC will be payable.

Calculation of SBC under certain scenarios

1. Reverse Charge Mechanism: Reverse charge under section 68(2) of the Finance Act, 1994 has been made applicable to SBC and hence in case of reverse charge, the liability of SBC has been shifted from service provider to the service recipient.

2. Where abatement is allowed: Taxable services, on which service tax is leviable on a certain percentage of value of taxable service, will attract SBC on the same percentage of value. Hence, the notification No. 26/2012-Service Tax, dated 20th June, 2012 would apply for SBC in the same manner as it applies for service tax.

Calculation of Service Tax on certain services

1. The Service Tax and SBC on services covered by Rule 2A, 2B or 2C of Service Tax Determination of Value) Rules, 2006, would be computed by multiplying the value determined in accordance with these respective rules with [14% + 0.5%]. Therefore, effective rate of Service Tax plus SBC in case of
   • original works under the works contract service = 5.8% [(14% + 0.5%)*40%]
   • other than original works under the works contract service = 10.15% [(14% + 0.5%)*70%]
   • services of serving of food or beverages by a restaurant, eating joint or a mess, having the facility of air–conditioning or central air-heating in any part of the establishment = 5.8% [(14% + 0.5%)*40%]
2. A person liable for paying the service tax under sub-rule (7), (7A), (7B) or (7C) of rule 6 of Service Tax Rules (i.e. air travel agent, life insurance premium, purchase and sale of foreign currency and services by lottery distributors/selling agents) shall have the option to pay SBC as determined as per the following formula:-Service Tax liability [calculated as per sub-rule (7), (7A), (7B) or (7C)] X 0.5%/14%. The option under this sub-rule once exercised, shall apply uniformly in respect of such services and shall not be changed during a financial year under any circumstances.

Applicability of Cenvat Credit

1. SBC is not integrated in the Cenvat Credit Chain. Therefore, credit of SBC cannot be availed.
2. Also, SBC cannot be paid by utilizing credit of any other duty or tax.
3. A person providing both exempted and taxable service and reversing credit @ 7% of value of exempted service under Rule 6 of Cenvat Credit Rules, does not need to reverse the SBC.

Separate Accounting of SBC

SBC would be levied, charged, collected and paid to Government independent of service tax. Hence, it needs to be charged separately on the invoice, accounted for separately in the books of account and paid separately under separate accounting code. It can be accounted and treated similarly to Education cesses. The separate accounting code for the SBC shall be notified shortly in consultation with the Principal Chief Controller of Accounts. These are as follows:-

Application of money collected from SBC

Proceeds of the SBC will be credited to the Consolidated Fund of India, and the Central Government may, after due appropriation made by Parliament, utilise such sums of money of the SBC for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.