MARCH 08, 2015

By Pritam Mahure, CA

IT's dead

The Education cess (EC) and Secondary and Higher Education cess (SHEC), are already subsumed in case of excise duty (from 1 March 2015) and in case of service tax from a date to be notified. So, the cesses are dead.

It's reborn

But, are they really? A new cess by the name of 'Swachh Bharat Cess' (SBC) is proposed to be introduced from a date to be notified [refer Chapter VI of the Bill (Clause 117)]. In this regard, key aspects of SBC are discussed in detail in following paras.

The diary of 'any'!

Clause 117 of Finance Bill, 2015 reads as ' 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 servicesat the rate of twoper cent. on the value of such services…'.

From the aforesaid enabling provisions, it is apparent that SBC may be applicable on all or 'any' services. Thus, initially, the Government may choose to levy SBC only few selected services and later it will apply on all services.

However, if the Government so decides then it is likely that disputes on 'classification' of services may come out of their coffins (again!).

This is in view of the fact that the assessees and authorities will tussle over whether SBC is applicable on a particular service (say for eg. Supply of Tangible Goods services).

Do takke ki baat!

So, while most of us are happy about the fact that now, we are not supposed break our heads to compute that 0.36% cesses, what is being missed is that now, the 2% cess will apply on 'value' of services (and not on the service tax amount as was the case with EC/SHEC).

So, effectively, SBC is going to pinch everyone 1.64% (2% less 0.36%) more.

And the credit goes to?

Credit of EC and SHEC was available for payment of EC and SHEC as CENVAT Credit Rules, 2004 (CCR) specifically provided for the same (though, their utilisation in near future by manufacturers still remains un-certain).

As regards, credit of SBC from perusal of the Budget 2015 provisions it can be observed that neither the CCR is amended at present nor anything is specifically said about possible amendment for availment of credit of SBC. This silence on availability of credit is scary, particularly, in view of the fact that the Government is talking about avoiding tax cascading and moving towards GST from 1 April 2016.

Jammu and Kashmir

SBC will apply on 'taxable services' . In this regard, section 65B (51) defines the term "taxable service" to mean ' any service on which service tax is leviable under section 66B' and service tax does not apply to the State of Jammu and Kashmir (J&K).

Now, as SBC will piggy back on 'taxable services' , residents of J&K will not be able to contribute to this noble initiative of promoting Swachh Bharat (even if they want to!) as service tax provisions do not apply to the State of Jammu and Kashmir. And so, will provisions of SBC.

Hanging the wrong man (again)!

SBC will apply on 'services'. Surprisingly, it's the 'goods' that spread litter, but surprisingly the 'services' sector will pay!

For example, a consumer of goods (say potato chips) throws the empty packet on streets, it will be the poor service consumer (say telecom service user) who will end up paying for cleanliness.

(A)swachh clarification is awaited

So, as A…Swachh Bharat Cess awaits its introduction, in days to come, a detailed clarification on the various aspectsof applicability of SBC and availability of its credit will surely be welcomed by the industry at large.