SKP Tax Alert
17 November 2015 | Volume 8 Issue 22
Clarifications on Swachh Bharat Cess applicable from 15 November 2015

In continuation of our earlier update on the applicability of the Swachh Bharat Cess (SBC) from 15 November 2015 at the rate of 0.5% on all taxable services (SKP Tax Alert: Volume 8 Issue 21), we would like to share our update on the Frequently Asked Questions (FAQ) issued by the Central Board of Excise and Customs (CBEC) on 12 November 2015 clarifying some crucial points.
Key aspects clarified in the FAQs are as follows:
  • The effective rate of service tax would be 14.5% with effect from 15 November 2015.
  • SBC would not be applicable on services specified in the negative list or services exempted by way of notification.
  • SBC is not a cess on service tax and would be leviable on the value of taxable services provided or agreed to be provided.
  • Where the service tax value is computed as per the rules specified under the Valuation Rules (i.e. works contract service, restaurant service and outdoor catering), SBC would be calculated on the value of service determined as per the Valuation Rules. For example, in case of restaurant service, service tax is leviable on 40% of the total value of service provided; accordingly, the effective rate of service tax including SBC would be 5.8% (i.e. 40% of 14.5%).
  • In case of availment of abatement, SBC would be computed on the abated value of the service. For example, in case of goods transport agency (GTA) services, presently, abatement of 70% is available. Accordingly, service tax is required to be paid on 30% of the value of taxable service after abatement of 70%; and the effective rate of service tax including SBC would be 4.35% (i.e. 30% of 14.5%).
  • SBC is to be charged on the invoice as a separate line item.
  • SBC would be applicable on services liable to be taxed on a reverse charge basis as well.
  • CENVAT credit of SBC paid cannot be availed.
  • SBC is to be paid in cash and the accounting codes for payment of SBC would be as follows (clarified through a Circular issued today):
Swachh Bharat Cess
(minor head)
Tax collection Other receipts Penalties Deduct refunds
0044-00-506 00441493 00441494 00441496 00441495
  • Rule 5 of the Point of Taxation Rules, 2011 would be applicable in determining the levy of SBC and the same is explained as follows:
Scenario Services provided Invoice issued Payment made Applicability of SBC
1 Before 15 November 2015 Before 15 November 2015 Before 15 November 2015 No
2 Before 15 November 2015 On or before 29 November 2015 (Invoice is raised within 14 days of the service being taxed for the first time) Before 15 November 2015 No
3 Before 15 November 2015 After 29 November 2015 Before 15 November 2015 Yes
4 Before 15 November 2015 On or after 15 November 2015 On or after 15 November 2015 Yes
5 On or after 15 November 2015 On or after 15 November 2015 Before 15 November 2015 Yes
6 On or after 15 November 2015 On or after 15 November 2015 On or after 15 November 2015 Yes
To access the complete FAQs on the CBEC website, please click here.

SKP's comments
Considering the above, businesses need to make appropriate changes in their accounting systems to incorporate the levy of SBC. SBC needs to be recorded in a separate account for output services provided and for input services received as no CENVAT credit of SBC can be availed. Also, as tabulated above, businesses need to evaluate the circumstances wherein SBC needs to be levied.

Non-availability of CENVAT credit of SBC would break the supply chain and would be against the basic intention of introducing GST which would allow seamless flow of credit. Also, non-availability of credit would increase the overall cost for businesses.

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