The Ministry of Finance, Government of India issued the much awaited clarification on applicability of Swachh Bharat Cess (‘Cess’), which would be effective from November 15, 2015.
A sudden imposition of Cess, has created a wide-spread concern in the industry. Also, there are various issues relating to Cess that were not clear. To clear the air and remove the ambiguities, the Government has issued this clarification. Key issues that have been clarified, are as under:
- Cess in case of abatement: It is clarified that the Cess would be levied on the same value on which service tax is levied, i.e., Cess would be computed on the abated value. For instance, in case of goods transport agency service, service tax (including Cess) would be payable at 30 percent on 14.5 percent, i.e., at 4.35 percent.
- Cess in case of works contract, restaurant services: In respect of works contract, restaurant services etc., service tax is payable on a lower value in terms of Service Tax (Determination of Value) Rules, 2006. It has been clarified that Cess shall also be payable on such value. For instance, in case of restaurant services, service tax is payable on 40 percent of the total amount charged; Cess will also be payable on such value.
- Cess on alternative service tax rates: In case of air travel agents, money changing services etc. service tax is payable at an alternative rate (optional), Cess would also be computed in proportion to such alternative rate. For instance, an air travel agent is liable to pay service tax rate at 0.70 percent of base fare in case of domestic booking. Cess would be payable at the rate of 0.025 percent (0.70 percent x 0.50/14).
- Reverse charge payments: In respect of services on which service tax is payable on reverse charge basis, Cess would also be payable on reverse charge basis.
- Point of taxation: As Cess is a new levy and is applicable on all taxable services, Rule 5 of Point of Taxation Rules, 2011 will apply. The impact vis-à-vis the point of taxation is tabulated as under:Event Applicability of Cess
1. Payment received prior to November 15, 2015
and Invoice issued prior to November 15, 2015 NO
2.Payment received prior to November 15, 2015
and Invoice issued within 14 days of levy NO
(i.e. before November 29, 2015)
3. Payment received prior to November 15, 2015,
services provided on or after November 15, 2015
and invoice issued after November 29, 2015 YES
(after 14 days of levy)
4. Payment received, services provided and invoice YES
issued on or after November 15, 2015