Recently, the Central Government vide Notification No. 21/2015-ST and 22/2015-ST, both dated November 6, 2015 had appointed November 15, 2015 as the date from which, Swachh Bharat Cess (“SB Cess”) at the rate of 0.5% on value of all taxable services shall be applicable. However, a sudden imposition of SB Cess created lot of confusions like to calculate value of taxable services under Abatement Notification, treatment of SB Cess on ongoing transactions, availability of Cenvat credit of SB Cess, etc. Thus, the Central Government has issued following Notifications in order to clarify certain aspects of applicability of SB Cess:
SB Cess at the rate of 0.5% will be levied on value of all taxable services after availing abatement –Notification No. 23/ 2015-ST dated November 12, 2015:
The Central Government has amended Notification No. 22/2015-ST dated November 6, 2015,wherein an effective rate of 0.5%of the value of all taxable services was fixed to clarify that SB Cess will be levied on value of taxable services after availing the benefit of abatements by way of an exemption provided vide Abatement Notification No. 26/2012-ST dated June 20, 2012 i.e. SB Cess would be computed on abated value.
For example, in case of GTA services, presently, abatement of 70% is available and accordingly, Service tax is required to be paid on 30% of value of taxable service after exemption (abatement) of 70% as provided under the said Abatement Notification. The effective rate of Service tax including SB Cess would be 4.35% (i.e. 30% of 14.5%).
Value of taxable services for the purposes of SB Cess shall be the value as determined in accordance with the Service Tax (Determination of Value) Rules, 2006 – Notification No. 23/ 2015-ST dated November 12, 2015:
Notification No. 22/2015-ST dated November 6, 2015 has been further amended to provide that value of taxable services for the purposes of SB Cess shall be the value as determined in accordance with the Service Tax (Determination of Value) Rules, 2006. Thus, SB Cess would be levied in the following manner:
1. Computation of tax under Works contract: In terms of Rule 2A of the Service Tax (Determination of Value) Rules, 2006, Service tax along with SB Cess needs to be applied on taxable value. Accordingly, effective rate of tax would be as under:
- In case of original works: 5.8% (14.5%*40%); and
- Other than original works: 10.15% (14.5%*70%)
2. Computation of tax on Restaurant and Outdoor catering services: In terms of Rule 2C of the Service Tax (Determination of Value) Rules, 2006, Service tax along with SB Cess needs to be applied on taxable value. Accordingly, effective rate of tax would be as under:
- In case of AC Restaurant services: 5.8% (14.5%*40%); and
- In case of Outdoors catering services: 8.7% (14.5%*60%)
SB Cess along with Service tax shall be paid on services under Reverse Charge Mechanism– Notification No. 24/ 2015-ST dated November 12, 2015:
The Reverse Charge Notification No. 30/2012-ST dated June 20, 2012 prescribes the specified services under full reverse charge wherein 100% service tax to be paid by the Service Recipient and under partial reverse charge wherein both the Service provider and service recipient has to pay specified percentage of Service tax. Now, the Central Government vide Notification No. 24/ 2015-ST dated November 12, 2015, has explicitly clarified that Service tax liability under Reverse charge/ partial reverse charge shall be applicable for the purposes of SB Cess mutatis. In other words, SB cess along with Service tax shall be paid on taxable services under Reverse Charge Mechanism as well.
Amendment made in Service Tax Rules, 1994 for providing alternate rate for SB Cess– Notification No. 25/ 2015-ST dated November 12, 2015:
As per sub-rules 7,7A,7B and 7C to Rule 6 of the Service Tax Rules, 1994, there is an alternative rate of Service tax for services, namely, air travel agents, insurance premium, purchase & sale of foreign currency and lottery.
Now, the Central Government has amended Service Tax Rules, 1994 vide Notification No. 25/ 2015-ST dated November 12, 2015and thereby, inserted sub-rule (7D) after (7C) under Rule 6 as under:
“(7D) The person liable for paying the service tax under sub-rule (7), (7A), (7B) or (7C) of rule 6, shall have the option to pay such amount as determined by multiplying total service tax liability calculated under sub-rule (7), (7A), (7B) or (7C) of rule 6 by 0.5 and dividing the product by 14 (fourteen),during any calendar month or quarter, as the case may be, towards the discharge of his liability for Swachh Bharat Cess instead of paying Swachh Bharat Cess at the rate specified in sub-section (2) of section 119 of the Finance Act, 2015 (20 of 2015) read with notification No.22/2015-Service Tax, dated the 6th November, 2015, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 843 (E), dated the 6th November, 2015, and 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.”
In other words, if Service tax is payable at an alternative rate, SB cess would also be computed in proportion to such alternative rate in following manner:
Total Service tax liability calculated under Rule 6(7)(7A), (7B) or (7C) * 0.5
14
For example, in case of air travel agent services, air travel agent opting alternative rate options liable to pay Service tax at the rate of 0.7% of the basic fare in case of domestic bookings. Therefore, SB Cess would be payable at the rate of 0.025% i.e. 0.5 multiplied by 0.7% divided by 14 on this service.
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