Busy with payment of tax and returns!

July is always a busy month for all the Tax Consultants where they try to file all the returns of all clients in time to avoid the late fees, interests and penalties. Amidst of our routine, this time, we have few Cess added to the taxes collected by the Central Government.

In our July edition, we will be seeing in detail about Swachh Bharat Cess. Why this cess has been introduced and what are all the benefits that we can get out of this cess and to whom all this cess is applicable. As usual, the Legal Term for the month and the summary of Notifications by MCA, SEBI, RBI and IT Department will follow this article.

 Saranya Deivasigamani,
CEO

Swachh Bharat Cess (SB Cess)

We all know that the government has imposed Swachh Bharat Cess (SB Cess) to make clean India. Even provisions were made in the Finance Bill’ 2015 to empower the Central Government to impose a Swachh Bharat Cess on all or any of the taxable services at a rate of 2% of the value of such taxable services. In this section, we will see what all the key points, objectives, benefits and details about this cess.

Objectives of Swachh Bharat Cess

Swachh Bharat Cess is introduced to achieve the following objects:

• To Change people’s attitude and create awareness among people towards the importance of cleanliness and good sanitation system.
• To introduce, modern and scientific municipal solid waste management practices.
• For the betterment of Indian economy.
• To develop the rural areas by developing the sanitation system.
• To prevent inflectional diseases like Diarrhea, Cholera, etc.
• Eradicate manual scavenging.
• To construct toilets for community and houses to eliminate open defection.

Benefits of Swachh Bharat Cess

There are many benefits other than clean India drive which includes the following major areas such as –

• Health – As per WHO report, due to unhygienic conditions, every Indian is losing thousands of rupees every year, which is a big financial loss to every Indian. Swachh Bharat Mission will help in improving health and to reduce this financial loss.
• Productivity – Improvement in health will result into improvement in productivity of every individual because high productivity means high earning. We hope a healthy India will soon be turned into a developed nation.
• FDI (Foreign Direct Investment) – In today’s scenario, our nations desperately need ‘Foreign Direct Investment’. Hence, Swachh Bharat Mission helps in attracting FDI.
• Tourism – 5% of Indians can get employment through tourism as all know that, cleanliness is a big hurdle in it. Foreign tourists are very particular about hygienic conditions, with improvements; we can attract more foreign travellers to India that will help in bringing foreign currency, which will boost GDP of the nation. Impact of SB cess under different scenario is discussed below:
• Negative List and Mega Exemption List – As discussed, SB cess would be leviable on the value of taxable services. Hence, all services covered under negative list and wholly exempt services would be out of the preview of SB cess.
• Abatement – Important thing to be noted down is the benefit of abatement would not be available to SB cess. Abatement notification no. 26/2012 is only applicable on Section 66B; Section 66B covers service tax rate of 14%, not SB cess. Hence, abatement notification is not applicable on SB cess, and this cess will be leviable on total value and not abated value.
• Reverse Charge provisions – As per 119(5) of Finance Act, 2015, provision of Chapter V of Finance Act, 2015 would be applicable on SB cess; hence reverse charge mechanism will be applicable on SB cess.

CENVAT

Although the fact that the provision of Chapter V would be applicable on SB cess, still separate amendment requires under CCR, 2004 to avail the CENVAT of SB cess or to utilise existing canvas to pay SB cess. Till the time no clarification received from Government

• CENVAT cannot be utilised for payment of SB cess and
• CENVAT credit of SB cess is also not available.

Applicability of Swachh Bharat Cess (SBC) – Date & Tax Rates

This Cess (SBC) is applicable only to taxable services. This cess is leviable on the value of services, thus, the effective rate of service tax would be 14.5% w.e.f. 15.11.2015. This cess will not be applicable on non-taxable services including the exempted services. This cess is to be disclosed separately on the invoice and paid separately.

Service Provider

The cess is to be collected and paid by any service provider:

• who is presently collecting and paying Service Tax and
• who may be required to collect Service Tax in the future (i.e. when the value of taxable services provided exceeds Rs. 10 Lakhs)

In the following situations there shall be no levy of SBC for a service provider:

• If the service has already been provided as on 15th Nov. 2015: Either the bill should have been raised before 15th Nov. 2015or the payment should have been received before 15th Nov. 2015
• If the service has not been provided as on 15th Nov. 2015: Both the bill should have been raised and the payment should have been received before 15th Nov. 2015

In any other situation, there shall be levy of SBC along with Service Tax

The impact of introduction of SBC on different situations is as follows as per Rule 4 of Point of Taxation Rules, 2011 (the cut-off date being 15th November 2015):

Date of Completion of Service	Date of Issuance of Invoice	Date of Receipt of Payment	Effective Rate of Service Tax
Before 15/11/2015	After 15/11/2015	After 15/11/2015	14.5%
Before 15/11/2015	Before 15/11/2015	After 15/11/2015	14%
Before 15/11/2015	After 15/11/2015	Before 15/11/2015	14%>
After 15/11/2015	Before 15/11/2015	After 15/11/2015	14.5%
After 15/11/2015	Before 15/11/2015	Before 15/11/2015	14%
After 15/11/2015	After 15/11/2015	Before 15/11/2015	14.5%

As per the latest Notification 23/2015 – Service Tax (ST) Dated 12th Nov’ 2015, Swachh Bharat Cess shall be leviable only on the specified percentage of taxable value. Thus, it is accepted in favour of the assessee. It is further clarified that the SBC on the services covered under Service Tax Valuation Rules’ 2006 shall be only of the taxable value. The effective rate would be as follows:-

Services	Effective Rate
Works Contract Services	5.8% / 10.15%
Money Changing	0.145%
Restaurant & Outdoor Catering	5.8% / 8.7%

Service Recipient

SBC would be applicable on all taxable services. Hence, even if a service is falling under Reverse Charge mechanism, the service recipient is liable to pay SBC. Moreover, unlike service provider, service recipient cannot go for exemption of Rs. 10 Lakhs under Small Service Provider Exemption Notification – 33/2012.

There are many private initiatives that are coming out to support the success of Swachh Bharat. However, the private sector whether it is individuals or corporate entities has to think ahead and spend their precious time and funds far beyond their CSR budgets to achieve real change. And change on a scale that can actually make a difference to people’s lives.

Legal Term

Appurtenant

Adjective. pertaining to something that attaches. In real property law, this describes any right or restriction which goes with that property, such as an easement to gain access across the neighbour’s parcel or a covenant (agreement) against blocking the neighbour’s view. Thus, there are references to an appurtenant easement or appurtenant covenant.

MCA Updates

• eForm AOC-04 for filing Annual Financial Statement is likely to be amended w.r.t filing of CSR expenditure details. The revised AOC-04 eForm is likely to be available on MCA portal by 3rd week of Jul-2016.
• Forms FC-2, FC-4, MGT-10, SH-7 and Refund Form were recently revised.
• In the Companies Act, 2013, Section 139 has been amended.
• Companies (Appointment and Remuneration of Managerial Personnel) Amendment Rules, 2016, Companies (Acceptance of Deposits) Amendment Rules, 2016, The Companies (Authorised to Register) Amendment Rules, 2016, Companies (Corporate Social Responsibility Policy) Amendment Rules, 2016 has been amended.

SEBI Updates

• Formats for Financial Results and Implementation of Ind-AS by Listed Entities has been revised.
• Clarification regarding grandfathering of ODI issuers and modification of has been made.

RBI Updates

• Master Direction – Reserve Bank of India (Financial Statements of All India Financial Institutions – Presentation, Disclosure and Reporting) Directions, 2016.

Income Tax Updates

• In Income Tax Rules, 1962, rule 128 Foreign Tax Credit, and 37BC. Relaxation from deduction of tax at higher rate under section 206AA has been included.