MARCH 06, 2015

By Vishwanath K, ACA, Grad. CS

IN terms of Chapter VI of the proposed Finance Bill, 2015 vide clause 117, the Central Government seeks to impose a cess to be called Swachh Bharat Cess to be levied 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.

Relevant portion of the Finance Bill, 2015 reads thus:

CHAPTER VI

SWACHH BHARAT CESS

117. (1) This Chapter shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

(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.

(3) …………………………………………

(4) ………………………………………...

(5) The provisions of Chapter V of the Finance Act, 1994 and the rules made thereunder , including those relating to refunds and exemptions from tax, interest and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Swachh Bharat Cess on taxable services , as they apply in relation to the levy and collection of tax on such taxable services under Chapter V of the Finance Act, 1994 or the rules made thereunder, as the case may be.

The memorandum explaining the provisions of the Finance Bill, 2015 also seconds the noble thought of the Government to avow that an enabling provision is being made to empower the Central Government to impose a Swachh Bharat Cess. Further, it also states that this Cess shall be levied from a date to be notified by the Central Government in this regard and will not have immediate effect.

Reasons for not so Swachh -the anomaly

It is interesting to note that though sub-clause (5) of Clause 117 proposes that the provisions of Chapter V of the Finance Act, 1994 and the rules made thereunder shall apply in relation to the levy and collection of the Swachh Bharat Cess on taxable services, there is no corresponding provisions in proposed Chapter VI to state or enable that the words and expressions used in this Chapter or Chapter V of the Finance Act, 1994 shall have the meanings respectively assigned to them in that Chapter i.e. Chapter V of the Finance Act, 1994.

Therefore, the absence of specific meaning or definition to the word "taxable service" or "service" or "value" in the proposed Chapter VI would lead to an anomalous situation and one can argue that merely because the provisions of Chapter V of Finance Act, 1994 and rules made thereunder are made applicable to Swachh Bharat Cess, the meaning or the definition of "service" or "taxable service" or "value" as per the Finance Act, 1994 cannot be construed in the same manner unless otherwise it is clearly specified.It is significant to note that Chapter VI of Finance Act and Chapter V of the Finance Act are entirely different in contextual sense and serves different purposes in relation to the financial proposals of the Central Government for a fiscal is concerned.

It is a well settled principle that definition of a term in one statute cannot be used as a guide for construction of a same term in another statute particularly in a case where statutes have been enacted for different purposes. Hotel & Restaurant Association 2006-TIOL-195-SC-MISC .

In interpreting a taxing statute, equitable considerations are entirely out of place. A taxing statute cannot be interpreted on any presumptions or assumptions. The Courts will interpret a taxing statute in the light of what is clearly expressed and it cannot import provisions in the statutes so as to supply any assumed deficiency. Modi Sugar Mills Ltd. - 2002-TIOL-977-SC-CT-CB

Before parting…

Ordinarily a cess is also a tax, but is a special kind of a tax. The nomenclature is not very important and one has to see the nature of the levy and more particularly in the above kind of a levy. It is a trite that what is called a cess may be in reality either be a tax or a fee depending on its nature. A tax is compulsory exaction of money for public purposes by State and whereas a Fee is charge for special service rendered by governmental agency and quid pro quo necessary in fee. Vijayalashmi Rice Mill 2006-TIOL-99-SC-CT.

Considering the scheme of things, it appears that the Swachh Bharat Cess is nothing but a form of tax and does not take the character of fee as there is no quid pro quo or special services rendered from / by the governmental agency to the tax payer, in particular.

However, it is not uncommon that the revenue authorities may take a traditional view that such a Cess may partake the character of a fee on the basis that the persons bearing the burden of such levy have availed indirect benefit as a special service was rendered by the government or governmental agencies out of such fee collected and it is sufficient that there is a "reasonable relationship" between the levy of the Fee and the services rendered . The denial of CENVAT credit, if availed by the taxpayer,would be their next thought in case there are no specific provisions enacted in the CENVAT Credit Rules, 2004 in this regard.

It is hoped that the above points may get greater clarity in times to come!!!

A rumination - Whilst GST introduction is around the corner, the logic of introducing such a levy under the banner of Swachh Bharat Cess where the same is not subsumed in the proposed 122 nd amendment to the Constitution (for obvious reasons) will create indefinite hardship to the taxpayer.

(The author is associated with Lakshmikumaran and Sridharan.)