Swachh Bharat Cess - Will CBEC Clarify?
TAX on whole value or abated?
A major manufacturer writes in, "cess is leviable on value of taxable service, whereas in certain services service tax is payable on abated value; whether cess is payable on total value of taxable service or on abated value wherever applicable. Kindly do the needful."
A consultant says,
The Notification No.26/2012-S.T. dtd. 20.06.2012, exempts the taxable service of the description specified in column (2) of the Table appended to the said Notification, from so much of the service tax leviable thereon under section 66B of the said Act, as is in excess of the service tax calculated on a value which is equivalent to a percentage specified in the corresponding entry in column (3) of the said Table, of the amount charged by such service provider for providing the said taxable service,
Further as per recent changes the Swachh Bharat Cess, as service tax on all or any of the taxable services at the rate of 0.5 per cent. on the value of such services will be levied & collected wef 15.11.2015.
The services like transport of goods by road, residential/commercial construction by builder /developer etc come under purview of the Notificationno.26/2012-S.T. dtd. 20.06.2012.
It is required to clarify specifically that whether the SBC is leviable on abated value or on the taxable value.
Illustration- Presently residential construction by builder /developer attracts service tax @ 3.5 % after abatement i.e. 25% of 14%. However, after SBC levy, whether it will be 3.5+0.5= 4% or 25% of 14.5%=3.625% on the value.
Rule 4 or 5?
An advocate comments:
It appears that almost everybody is having a view that Rule 4 of POT Rules, will apply for Swacch Bharat Cess (SBC).
However, I feel that SBC is a new tax (Cess), different from Service Tax, even though the provisions for Service Tax Chapter V of FA, 1994 and rules made thereunder are adopted for levy, assessment and collection of SBC. Accordingly, Rule 5 of POT Rules, provides for payment of taxes when the service is taxed for the first time. The said rule is extracted below for better clarity: -
RULE 5. Payment of tax in case of new services. - Where a service is taxed for the first time, then, -
(a) no tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such service became taxable;
(b) no tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within fourteen days of the date when the service is taxed for the first time.
Thus, SBC is a fresh levy i.e. cess different from Service Tax, even though it is treated as Service Tax in terms of Sec.119(2) of Finance Act, 2015, which is further strengthened by the fact that no corresponding amendment in Cenvat Credit Rules, 2004, treating SBC as Service Tax. As such, I feel that Rule 5 of POT Rules will apply for SBC and not Rule 4.
Will the CBEC clarify these doubts or should we wait for another 20 years for the Supreme Court to decide these issues after protracted litigation?
Adam Smith said, "The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person. Where it is otherwise, every person subject to the tax is put more or less in the power of the tax-gatherer, who can either aggravate the tax upon any obnoxious contributor, or extort, by the terror of such aggravation, some present or perquisite to himself. The uncertainty of taxation encourages the insolence and favours the corruption of an order of men who are naturally unpopular, even where they are neither insolent nor corrupt. The certainty of what each individual ought to pay is, in taxation, a matter of so great importance, that a very considerable degree of inequality, it appears, I believe, from the experience of all nations, is not near so great an evil as a very small degree of uncertainty."
"The [tax] law, contrary to all the ordinary principles of justice, first creates the temptation, and then punishes those who yield to it; and it commonly enhances the punishment too in proportion to the very circumstance which ought certainly to alleviate it, the temptation to commit the crime.”