MARCH 11, 2015

By H S Brar, Superintendent of Central Excise

SWACHH BHARAT Cess is an indirect tax which has been proposed to be levied on services in addition to service tax already leviable thereon. It has been introduced vide Chapter VI Clause 117 of the Finance Bill, 2015. For the ease of discussion, full text of the same is reproduced below:-

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) The Swachh Bharat Cess leviable under sub-section (2) shall be in addition to any cess or service tax leviable on such taxable services under Chapter V of the Finance Act, 1994, or under any other law for the time being in force.

(4) The proceeds of the Swachh Bharat Cess levied under sub-section (2) shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the Swachh Bharat Cess for such purposes specified in sub-section (2), as it may consider necessary.

(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.

At the cost of repetition, the Swachh Bharat Cess shall be -

• levied on a future date to be notified later on;

• levied and collected as service tax, on all or any of the taxable services, @ 2% on the value of services;

• for the purpose of financing and promoting Swachh Bharat initiatives or any other purpose relating thereto; and

• all the provisions of Chapter V of the Finance Act, 1994(Service Tax) and rules made thereunder, including those relating to refunds, exemption, interest and penalty shall apply as they apply to service tax.

The points to be noted are:-

• Although it is called a cess, it shall be leviable on the (gross) value of services and not on the amount of service tax. Thus, it will lead to an increase in the tax burden by 14% approximately(16% instead of 14%) on the specified services. It is important to note that the inducement to evade a tax is directly correlated to the rate thereof.

• It shall be levied on all or any of the taxable services. Since, there is a scope of flexibility it is expected to be levied on only some of the services. We can safely presume that it will be levied on services, being provided by the organised sector, which contribute large share of the total service tax kitty. Some services are banking, telecom, insurance, insurance auxiliary services etc. However, it will be interesting to see how such services are classified as the government has opted for the negative list regime since 2012 and only a few services remain separately identifiable as per Section 66E of the Finance Act, 1994.

• Its stated objective is financing and promoting Swachh Bharat initiatives but it can also be used for any other purpose relating thereto. Also, first it shall be credited to the Consolidated Fund of India and then withdrawn therefrom. This gives the Government the flexibility in relation to its utilisation.The following figures not only make an interesting reading but also the reveal the comparative allocation /generation of funds :-

Rs. in Crores

(Extracted from various reports/charts relating to Union Budget)

Considering the above figures we can be sure of one thing, in a not so distant future, our Bharat will be Swachh.

• All the provisions of Chapter V of the Finance Act, 1994 including those relating to refunds, exemption, interest and penalty shall be applicable to Swachh Bharat Cess as they apply to service tax. Although there is no direct reference of admissibility of CENVAT credit of the subject levy, it appears that CENVAT credit shall be available since all the provisions of the Finance Act, 1994 appear to be applicable thereon, however, there is no reference to it in either the above clause or any of the other budget documents. Even if CENVAT credit thereof is allowed, it may lead to situations where the input service may be liable to Swachh Bharat Cess and the output service may not be liable to the same. On the lines of restriction of utilisation of a particular levy as input only for the discharge of the liability as output, the service providers will be able to pass on the burden of the tax, only as a cost, instead of in the form of credit thereof. This will lead to increase in the overall cost of service. In cases where the said input services are utilised by a manufacturer, the latter will not be able to avail credit thereof, on the pattern of service tax, as there is no indication to this effect.

Considering the above facts, it appears that a lot more work needs to be done on the issue in framing the Notifications and amending the law, before the tax in question is levied.

(The views expressed are strictly personal.)