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SWACHH BHARAT CESS-CLEANING INDIA OR CLEANING POCKETS!!

Service Tax - By: - Pradeep Jain - Dated:- 21-11-2015 Last Replied Date:- 30-12-1899 - Preface:- The moment when it was announced by the Hon ble Finance Minister that the exemption is being provided to the levy of Education Cess and Secondary & Higher Education Cess, there was a sigh of relief that there will be reduction in the rate of service tax. Moreover, it was represented by the trade that the maintenance of separate accounts for Education Cess & SHE Cess consumes lot of time and i .....

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vices under section 119 of the Finance Act, 2015 on specified services from a date to be notified in future. This news put all the service tax assessees in distress as the rate of service tax increased from 12% to 14% and a new levy in the form of SBC was to be implemented in near future on specified services. Consequently, this lead to putting the assessees in the same situation as before and only the name of Cess was changed. This new levy of SBC has been finally revealed by the government by .....

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er Rule 6(7), 6(7A), 6(7B), or 6 (7C) of Service Tax Rules, 1994 shall calculate SBC by multiplying the service tax amount calculated under above Rules by 0.5 and dividing by 14 The provisions of reverse charge mechanism contained in Notification no. 30/2012-ST as applicable to a particular taxable service will also apply for SBC. SBC is leviable at the rate of 0.5% on the value of all taxable services with effect from 15.11.2015. SBC is not leviable on service which are exempt or not leviable t .....

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ased which seeks to clarify various doubts and issues pertaining to SBC. The highlights of the clarification given in the FAQs are as follows:- SBC would be levied, charged, collected and paid to Government independent of service tax. This needs to be charged separately on the invoice, accounted for separately in the books of account and paid separately under separate accounting code as notified. SBC may be charged separately after service tax as a different line item in invoice. It can be accou .....

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or the first time, all services (except those services which are in the Negative List or are wholly exempt from service tax) are being subjected to SBC for the first time. SBC, therefore, is a new levy, which was not in existence earlier. Hence, rule 5 of the Point of Taxation Rules would be applicable in this case. Therefore, in cases where payment has been received and invoice is raised before the service becomes taxable, i.e. prior to 15th November, 2015, there is no liability of Swachh Bhara .....

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15 but payment is received prior to that date and invoice in respect of such service is not issued by 29th Nov, 2015. In depth analysis of the above cited provisions:- On perusing the above provisions and clarifications, the following observations are worth noting:- The notification no. 22/2015-ST dated 06.11.2015 seeks to levy SBC at the rate of 0.5% on taxable value of all services with effect from 15.11.2015. It is pertinent to note that section 119 of chapter VI of the Finance Act, 2015 spec .....

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SBC will be levied on certain specified services but this notification seeks to levy SBC on all services except exempted services. The new levy SBC is being implemented with effect from 15.11.2015, in the mid of month which is not at all understandable and has increased complexities. The assessees will face practical difficulties in reflecting the amount of SBC for the month of November in the service tax return. Moreover, the government has also increased its task to make suitable changes in th .....

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Cess. However, there has been no reduction in the compliance mechanism as the assessees are once again required to maintain separate records for the new levy of SBC. There is also separate accounting code for payment of SBC, its interest and penalty. SBC is not cenvatable as stated in the FAQ released and available on CBEC website. This has tremendous adverse consequence to the assessees as SBC will become the cost and will not be available as cenvat credit. This is the major drawback of new le .....

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remely adverse and far reaching. Hence, it is prayed that amendment is made in the Cenvat Credit Rules, 2004 as soon as possible because when all the provisions applicable to service tax are made applicable to this SBC, then the credit of SBC should also be allowed. The major issue that is haunting the minds of the assessees is the absurdity in the effective implementation date of this new levy, SBC. Although, the notification no. 21/2015-ST dated 06.11.2015 specifies that the provisions of chap .....

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n 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. Consequently, the provisions of Point of Taxation Rules, 2011 are also made applicable due to which in certain circumstances, SBC is leviable even if service was provided prior to 15.11.2015. Moreover, the clarification of FAQ regarding applicability of Rule 5 itself is doub .....

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date of issue of invoice and date of receipt of payment for the service. Whenever any two out of the above cited three events occur, the rate of tax applicable on the occurrence of the said events will be relevant. This can be illustrated by the following example:- Date of provision of service Date of issue of invoice Date of payment to service provider Point of Taxation Date Whether SBC leviable? 31.10.2015 02.11.2015 17.11.2015 31.10.2015 No 31.10.2015 16.11.2015 17.11.2015 16.11.2015 Yes Rule .....

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Taxation Rules, 2011 in case of reverse charge mechanism:- This Rule starts with Non-Obstante clause and has overriding effect over all the Rules of POTR. Notwithstanding anything contained in these rules, point of taxation in respect of persons required to pay tax as recipients of service shall be the date on which payment is made. If the payment is not made within a period of 3 months from the date of invoice, the point of taxation shall be the date immediately following the expiry of three mo .....

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reasons:- Firstly, Rule 5 of POTR applies when a new service is taxed for the first time. However, SBC is not a new service rather it is new levy on existing taxable services. Although SBC is taxed for the first time but that cannot lead to conclusion that the provisions of Rule 5 of POTR would come into picture. On the contrary, according to author s view, Rule 4 and Rule 7 of the POTR are applicable. Secondly, the time period of 14 days for issuance of invoice has already been amended as 30 da .....

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