LEVY OF SWACHH BHARAT CESS

[Dr. Sanjiv Agarwal]

Backdrop

When Finance Act, 2015 was enacted, rate of Service Tax was enhanced from 12% to 14% and both education cesses subsumed in the enhanced rate of Service Tax. Alongwith, a new cess called Swachh Bharat Cess (SBC) was legislated but its levy was deferred due to political reasons.

The Union Budget speech in para 121 stated as follows -

"Introduction of GST is eagerly awaited by Trade and Industry. To facilitate a smooth transition to levy of tax on services by both the Centre and the States, it is proposed to increase the present rate of service tax plus education cesses from 12.36% to a consolidated rate of 14%".

Finance Act, 2015 amended section 66B so as to increase the Service Tax from 12 to 14 per cent. Further, Clauses 179 and 187 respectively of the Finance Bill, 2015 provide that-

1. Section 95 of the Finance Act, 2004 levying education cess, and
2. Section 140 of the Finance Act, 2007 levying SHE cess

shall cease to have effect from a notified date after enactment of Finance Act, 2015. i.e. 1-6-2015.

Levy of both education cesses will continue to be levied on income tax and customs as these have not been subsumed in tax rates.

With focus on clean India, Finance Act, 2015 has introduced a special cess called 'Swachh Bharat Cess' (SBC) over and above Service Tax. This SBC shall be used to finance and promote swachh bharat initiatives. According to the Budget speech, 'swachh bharat' has been transformed into a movement to regenerate India. It is proposed to build six crore toilets out of which 50 lakh have already been attained. Swachh Bharat is not only a programme of hygiene and cleanliness but, at a deeper level, a programme for preventive health care and building awareness.

Budget speech in para 123 stated as follows -

"In indirect taxes, I propose to increase the Clean Energy Cess from ? 100 to ? 200 per metric tonne of coal, etc. to finance clean environment initiatives. Excise duty on sacks and bags of polymers of ethylene other than for industrial use is being increased from 12% to 15%. It is also proposed to have an enabling provision to levy Swachh Bharat Cess at a rate of 2% or less on all or certain services if need arises. This Cess will be effective from a date to be notified. Resources generated from this cess will be utilised for financing and promoting initiatives towards Swachh Bharat".

The date from which this amendment would come into effect was to be notified in due course.

SWACHH BHARAT CESS - A SNAPSHOT A cess over & above Service Tax Introduced by Finance Act, 2015 w.e.f. 15 November, 2015 Levied @ 2 percent but net rate of SBC after exemption is 0.50 percent Levied @ 0.50 percent on value of taxable service, not on Service Tax amount SBC to be levied on all taxable services. SBC to be charged separately in the invoice / bill Separate accounting code of SBC notified SBC to be paid like Service Tax by way of challan under specified code SBC to be paid in cash only, cannot be paid by utilizing cenvat credit No Cenvat credit can be taken for SBC paid Thus, SBC neither cenvatable nor cenvat to be used for paying SBC Everybody contributes for SBC irrespective of small or big service provider SBC not payable on exempt services or services under negative list SBC also payable on Service Tax liability under reverse charge SBC to be charged on abated value where abatements are allowed.

Effective Date for Levy of SBC

Now that Bihar assembly elections are over (last tranche of polling took place on 5^th November, 2015), Central Government without waiting for even a day, has notified levy of SBC w.e.f. 15^th November, 2015 vide Notification No. 21/2015-ST dated 06.11.2015. Since the law requires levy of Service Tax @ two percent of value of taxable services, an exemption notification has also been issued (Notification No. 22/2015-ST dated 06.11.2015) whereby SBC of over 0.5 percent shall be exempt implying that SBC shall be effectively levied@ 0.05 percent (half percent only) on value of taxable services.

Effective Rate of Service Tax

This would effectively mean that Service Tax burden w.e.f. 15^th November 2015 is going to be 14.5 percent (not 14 percent) and that this additional 0.5 percent is neither going to be cenvatable nor can be paid by using the accumulated Cenvat credit.

The effective rate of Service Tax including Swachh Bharat Cess would be 14.50 percent. Thus, for every rupees 100 of value of services, 50 paisa more will have to be shelved out. This impact will be on all taxable services and services in negative list / exempted services will not be impacted. The impact is going to be wider as it will be applicable on services under reverse charge also. Though it is not an another tax but the Government feels that it is a step towards involving each and every citizen to make contribution to Swachh Bharat drive.

The Service Tax collection target for the current fiscal is ₹ 2,09,774 crore @ 14% w.e.f. 1^st June 2015 and @ 12 percent prior to that date. With about 135 days available to collect Swachh Bharat Cess, it is expected that Government may collect about ₹ 600-700 crore on account of SBC in the time available.

Accounting Code

The following accounting codes have been notified for SBC –

Swachh Bharat Cess (Minor Head)	Tax Collection	Other Receipts	Penalties	Deduct Refunds
0044-00-506	00441493	00441494	00441496	00441495

To conclude

It appears that Government was waiting for Bihar elections to conclude so that this levy could be pressed into for collection of SBC. In fact, Government has lost revenue collection in the form of SBC as had it been collected from 1^st June 2015, it could have collected over ₹ 700 crore by now in last over five months.

However, one of the indirect but positive impact of SBC and its proper usage on swachh bharat initiatives will be reflection in improved sanitation and decrease in hygiene / sanitation influenced diseases. According is one estimate, Government spends about ₹ 6700 crores on health care and prevention per annum. SBC usage can prevent many deceases such as dengue, malaria, jaundice, cholera etc. According to another study by American Journal of Tropical Medical and Hygiene, between 2006 and 2012, there has been a direct cost of about ₹ 3500 crore per year on over 20000 dengue cases per year.

Discussions to this article

[Ganeshan Kalyani]

Swachh Bharat Cess is an additional tax on taxable service. Like other taxes which are cenvatable SBC should also have been amended in Cenvat credit Rule for allowing cenvat credit. However it has been mentioned in the FAQs that SBC should be separately accounted and paid under separate accounting code. Hence CBEC may come up with notification/circular discussing about cenvat credit on SBC.

[Dr. Sanjiv Agarwal]

Please refer to my separate article on this issue posted today only to TMI