Swachh Bharat Cess @ 0.5% on value of all taxable services to be levied from November 15, 2015

 

Pursuing with Mr. Narendra Modi’s Dream of Swachh Bharat, in Union Budget 2015, a provision was made for levying a Swachh Bharat Cess (“SB Cess”) on all or any of the services, for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto. However, the SB Cess was to be levied from such date as may be notified by the Central Government after the enactment of the Finance Bill, 2015.

 

SB Cess now made applicable from November 15, 2015 - Notification No. 21/2015-ST dated November 6, 2015:

 

After the Hon’ble President had given assent to the Finance Bill, 2015 on May 14, 2015, the Ministry of Finance, Department of Revenue vide Notification No. 14/2015-ST dated May 19, 2015 had notified increase in the rate of Service tax from 12.36% to flat 14% (Subsuming Education Cess and Secondary & Higher Secondary Education Cess) to be effective from June 1, 2015. But SB Cess was left to be notified at a later date.

 

Now, the Central Government vide Notification No. 21/2015-ST dated November 6, 2015 has appointed November 15, 2015 as the date from which, SB Cess shall be effective. SB Cess would be over and above the present 14% Service tax rate.

 

SB Cess at the rate of 0.5% will be levied on value of all taxable services - Notification No. 22/2015-ST dated November 6, 2015:

 

Section 119 of the Finance Act, 2015 (Chapter VI) that contains a provision of new levy of cess called the SB Cess, empowers the Central Government to impose Cess on all or any of the taxable services at the rate of 2% of the value of such services, for the purpose of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.

 

Therefore, the Central Government has also issued another Notification i.e. Notification No. 22/2015-ST dated November 6, 2015 to exempt all taxable services from payment of SB Cess which is in excess of 0.5% of the value of taxable services. In other words, w.e.f. November 15, 2015 ‘SB Cess’ @ 0.5% will be levied on value of all taxable services i.e. the effective rate of Service tax including SB Cess will be 14.5% from November 15, 2015.

 

No SB Cess on services specified under the Negative List of services or otherwise exempted by a notification issued under sub-section (1) of section 93 of the Finance Act, 1994:

 

Notification No. 22/2015-ST dated November 6, 2015 further provides that SB Cess shall not be leviable on services which are exempt from Service tax by a notification issued under Section 93(1) of the Finance Act, 1994 or otherwise not leviable to Service tax under Section 66B thereof.

Therefore, SB Cess @ 0.5% will be levied on value of all taxable services except the following:

• Negative List of Services under Section 66D of the Finance Act, 1994
• Services exempted by a notification issued under sub-section (1) of Section 93 of the Finance Act, 1994 i.e.

- Mega Exempted Services vide Notification No. 25/2012-ST dated June 20, 2012.

- Services exempted as specified to certain extent under the Abatement Notification No. 26/2012-ST dated    June 20, 2012

 

To access the Notifications, please click on the link below:

 

http://www.cbec.gov.in/htdocs-servicetax/st-notifications/st-notifications-2015/st21-2015

 

http://www.cbec.gov.in/htdocs-servicetax/st-notifications/st-notifications-2015/st22-2015

 

Open issues that require immediate clarification from the Board:

 

It is worth observing that the Government has not provided any further details of the levy of SB Cess. The continuous hike in Service tax rate from 12.36% to 14% and now 14.5% will definitely raise the burden of taxes on the ‘Aam Aadmi’. Further number of issues may crop up if no further clarification is issued, few of which are discussed as under:

1. Accounting head: What will be the accounting head for depositing SB Cess?
2. Availability of Cenvat credit of SB Cess in the hands of Manufacturer or Service Provider: Whether Cenvat credit of SB Cess would be available or not as there is no amendments proposed in the Cenvat Credit Rules, 2004 pertaining to availment of Cenvat credit of SB Cess?

If no credit is made available, it would directly add to the cost of goods and services. In case of export of goods or services, exporter would not be entitled for refund of SB Cess.

3. Calculation of value of taxable services under Abatement Notification: How SB Cess would be dealt while availing the benefit of abatements by way of an exemption provided vide Abatement Notification No. 26/2012-ST dated June 20, 2012.

For example, under GTA services, presently, abatement of 70% is available and accordingly, Service tax is required to paid on 30% of value of taxable service after exemption (abatement) of 70% as provided under the said Abatement Notification.

Hence, question is arising à What would be effective rate of Service Tax including SB Cess. Whether it would be leviable at 4.2% (i.e. 30% of 14%) + 0.5% = 4.7% or 30% of 14.5% = 4.35%?

As per our understanding, it should be 4.35% as taxable value after abatement i.e. 30% for GTA Service for chargeability of Service Tax and SB Cess would be SAME in terms of sub-section (5) of Section 119 of the Finance Act, 2015, which states that “the provisions of Chapter V of the Finance Act, 1994 and the rules made there under, including those relating to refunds and exemptions from tax, interest and imposition of penalty shall, as far as may be, apply in relation to the levy and collection 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 there under, as the case may be.”

However, it is better that a proper clarification is issued in this regard. 

4. Treatment of SB Cess on ongoing transactions: With the Service tax rate (including SB Cess) of 14.5% becoming effective from November 15, 2015, there are chances of turmoil being faced by the service provider in respect of the ongoing transactions for which either certain advance payment is received prior to November 15, 2015 but the completion of provision of service may take place post November 15, 2015 or vice versa.

Tussle between Rule 4 of the Point of Taxation Rules, 2011 and Section 67A of the Finance Act, 1994 will again crop up but, we are of the considered view that SB Cess should be levied on value of taxable services rendered on or after November 15, 2015.

5. Implication of SB Cess on services specified under Rule 6 of Service Tax Rules, 1994: Implication of SB Cess while computing Service tax on services specified under Rule 6 of the Service Tax Rules, 1994 namely air travel agent, insurance premium, purchase and sale of foreign currency needs to be clarified as there is no specific exemption for such services.

Other important points for immediate digest:

1. No SB Cess on goods: SB Cess is levied under Chapter VI of the Finance Act, 1994 and is applicable only on provision of taxable services. Hence, no SB Cess shall be imposed on the goods manufactured.
2. Computation of tax under Works contract: In terms of Rule 2A of the Service Tax (Determination of Value) Rules, 2006, tax needs to be applied on the value so arrived at the rate of 14.5%. Accordingly, effective rate of tax would be as under:

• In case of original works: 5.8% (14.5%*40%); and
• Other than original works: 10.15% (14.5%*70%)

3. Computation of tax on Restaurant and Outdoor catering services: In terms of Rule 2C of the Service Tax (Determination of Value) Rules, 2006, tax needs to be applied on the value so arrived at the rate of 14.5%. Accordingly, effective rate of tax would be as under:

• In case of Restaurant services: 5.8% (14.5%*40%); and
• In case of Outdoor catering services: 8.7% (14.5%*60%)

4. Computation of tax under Reverse Charge Mechanism: SB cess along with Service tax shall be paid on services under Reverse Charge Mechanism as SB Cess is applicable on all taxable services.
5. SB Cess to be charged and shown separately in Invoice: SB Cess would be over and above the present 14% Service tax rate. Hence, SB Cess needs to be charged separately on the invoice, needs to be accounted separately in the books of account and needs to be paid separately under separate accounting head which may be notified separately.

With the aim of Mr. Narendra Modi’s Government to introduce GST by April 1, 2016 wherein all the Cesses on goods and services will be subsumed under the GST, the logic of introducing such a levy under the banner of SB Cess just few months before, will definitely create hue and cry among the Trade.

 

As SB Cess awaits its introduction, in days to come, an immediate detailed clarification on the various aspects of applicability of SB Cess and availability of its credit will surely be welcomed by the industry at large.

 

Relevant Provisions pertaining to SB Cess in Chapter VI of the Finance Act, 2015:

 

THE FINANCE ACT, 2015 - CHAPTER VI

 

SWACHH BHARAT CESS

 

“119. (1) This Chapter shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint.

 

(2) There shall be levied and collected in accordance with the provisions of this Chapter, a cess to be called the Swachh Bharat Cess, as service tax on all or any of the taxable services at the rate of two per cent. on the value of such services for the purposes of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.

 

(3) The Swachh Bharat Cess leviable under sub-section (2) shall be in addition to any cess or service tax leviable on such taxable services under Chapter V of the Finance Act, 1994 (32 of 1994), or under any other law for the time being in force.

 

(4) The proceeds of the Swachh Bharat Cess levied under sub-section (2) shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the Swachh Bharat Cess for such purposes specified in sub-section (2), as it may consider necessary.

 

(5) The provisions of Chapter V of the Finance Act, 1994 and the rules made there under, including those relating to refunds and exemptions from tax, interest and imposition of penalty shall, as far as may be, apply in relation to the levy and collection 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 there under, as the case may be.”

Section 234E does not suffer from any vices for being declared to be ultra vires of the Constitution. Section i.e., 234E is intra vires of the Constitution

• In the instant petition the petitioners challenged the constitutional validity of Section 234E contending that it is ultra virus of Constitution of India .

• According to petitioners levy or imposition of 'fee' is regarded as a written or consideration for services rendered and in the instant case the Government is not providing any service to the deductors and as such levy of fee under Section 234E is invalid.

• The petitioner submitted that for levy of `fee' services should be rendered by the State and it is quidpro- quo. In the absence of any services being rendered by the State to demand `fee' or levy of such fee would be without authority of law. There being no rational or nexus to `levy' of fee under the impugned provision for `service' being rendered by the State (which is none), such imposition is bad-in-law, unconstitutional and ultra vires of the Constitution.

The High court held as under :

• There cannot be any dispute to the fact that assessee is required to file e-returns to Central Processing Centre – CPC for processing of statements of tax deducted at source vide Section 200A, which provision is in para materia with Section 143(1). While processing the return of income under Section 143(1)(a) no personal hearing is provided to an assessee and as such the same is also not provided under Section 200A. Thus, the doctrine of principles of natural justice is given a go by under impugned provision or its violation thereof would not be a ground available to the petitioners to challenge the impugned provision on this ground. Hence, contention raised in this regard is without merit and stands rejected.

• A person responsible for deduction of tax namely deductor is required to furnish periodical statements containing the details of deduction of tax within the prescribed due date. Any delay in furnishing TDS statements would result in perennial problems being faced by the department while processing the return of income filed by the assessees. When a return of income is filed by an assessee a statutory obligation is cast on the department to process the said return of income within the specified period from the date of filing. If for want of details such return of income not being processed or assessment order not being framed or would be stalled or in other words the return of income filed by an assessee on whose behalf the tax has already been deducted by the deductor is not furnished within the prescribed time by such deductor, it would consequently have cascading effect namely, it would stall the processing of the return of income filed by thedeductee. In a given case, there might be instances of where the assessee would be entitled to refund and on account of delay occurring due to non delivery of TDS statements by the deductors , it would result in delay in extending the credit of TDS to the person on whose behalf tax is deducted and consequently it would result in delayed issuance of refunds to the deductee or raising of consequential demands against the deductee which otherwise would not have been raised. In this lengthy and unwarranted process it may erode the confidence reposed by the tax payer on the department. Last but not the least, it would result in financial burden to the Government namely on account of late payment of refund interest is to be paid on such refunds and it would also result in cash flow crunch, especially for business entities.

• This Court in exercise power vested under Article 226 of the Constitution can declare a statute or a provision in the statute as unconstitutional and there cannot be any dispute with regard to this proposition. However, such power would be exercised where it is clear that impugned Act or provision is beyond its legislative competence or violates the provisions of the Constitution of India. Where two views are possible, one making the statute constitutional and the other making it unconstitutional the former would prevail or would be preferred.

• Thus, viewed from any angle it cannot be held that Section 234E of the Income Tax Act, 1961 suffers from any vices for being declared to be ultra vires of the Constitution. In other words it has to be held that the impugned Section i.e., 234E of the Income Tax Act, 1961 is intra vires of the Constitution.

CBDT Extends Due Date For Filing ROI ONLY For Assessess In P&H And Gujarat Subject To Outcome Of Appeal In Supreme Court

The Central Board of Direct Taxes, in compliance to the orders of Hon’ble Punjab and Haryana High Court dated 28.09.2015 in case of Vishal Garg & Ors. vs. Union of India & Anr.; CWP 19770-205 and order of Hon’ble Gujarat High Court dated 29.09 .2015 in case of All Gujarat Federation of Tax Consultants vs. CBDT; Special Civil Application No. 15075 of 2015 and in exercise of powers conferred under section 119 of the Income-tax Act , 1961 (‘Act’), hereby orders that the returns of income due to be E-filed by 30th September, 2015 may be filed by 31st October, 2015 in cases of Income-tax assessees of the State(s) of Punjab and Haryana and Union Territory of Chandigarh and the State of Gujarat. This order shall be subject to the outcome of any further appeal/SLP which the CBDT may file against the said judgment 

The Update of extension can be reviewed at -http://www.incometaxindia.gov.in/Pag…/departmental-news.aspx

UPDATES:

1. CIT duly empowered to decline request for waiver of interest u/s. 234C of the Income Tax Act – [The Fertilizers and Chemicals Travancore Ltd. vs. DCIT (Kerala High Court)]

2. Refund of excess salary which was granted in earlier years is deductible because the assessee is under legal obligation to repay the amount. Ahmadabad Tribunal -Vrajeshwari Parikh.

3. State governments not competent to levy VAT on MRP - High Court of Patna- Mapra Laboratories Pvt. Ltd. vs. CV.

4. The Employees Provident Fund Organisation (EPFO) increased the maximum amount assured under its deposit linked insurance to Rs.6 lakh.

5. Reserve Bank of India relaxed norms for banks to grant certain loans to their chief executives and directors.

6. Finance Minister unveils guidelines of 'Gold Monetization Scheme' and 'Gold Bond Scheme'.

7. The office of Regional Director, North, MCA working from Ground Floor, A-14, PDIL Bhawan, Sector-1, NOIDA has been shifted to B-2 Wing, 2nd Floor, Paryavaran Bhawan, CGO Complex, New Delhi-110003 w.e.f. 15.09.2015.

Shining Stars of ICA

Updates

Income Tax Updates1.TDS default doesn't invite sec. 40(a)(ia) disallowance if total income of deductor is exempt

2. High Court unhappy with CBDT for refusing to condone delay of one day in filing return

3. Cultivation of agricultural land by assessee himself isn't necessary to claim sec. 54B relief

Service tax Updates
4. CBEC - Service Tax 

5. Tax Payer Service Vertical to address tax payers' grievances

Point Of Discussion
6. Tax free gift

Professional Updates
Bad News for our profession
7. IBA allow members of ICMA as Stock Auditor
please send a mail to PDC ICAI , President ICAI and VP ICAI to raise voice.
In Detailed :-

1.TDS default doesn't invite sec. 40(a)(ia) disallowance if total income of deductor is exempt

IT : Where assessee's total income is exempt under section 10(26), for assessee's lapse of not complying with his tax withholding obligations, there cannot be any occasion to invoke section 40(a)(ia) to treat relevant amount disallowable as an income of assessee on standalone basis

• Disallowance under section 40(a)(ia) does make good of lapses in deduction of tax at source, when such tax deductions are due; this provision is not for purpose of penalizing assessee for failure to deduct tax at source

 [2015] 60 taxmann.com 360 (Guwahati - Trib.)

IN THE ITAT GUWAHATI BENCH

Tamchikusuk v. Additional Commissioner of Income-tax, Range, Tezpur, Assam

2. High Court unhappy with CBDT for refusing to condone delay of one day in filing return

IT: Refusal by CBDT to condone one day delay in filing of return of income is a failure to exercise of power vested under section 119(2)(b)

 [2015] 60 taxmann.com 233 (Bombay)

HIGH COURT OF BOMBAY

Cosme Matias Menezes (P.) Ltd. v. Commissioner of Income-tax, Goa*

Section 139, read with sections 119 and 239, of the Income-tax Act, 1961 - Return of income (Condonation of delay in filing return) - Assessment year 2006-07 - Petitioner assessee filed its return of income one day late and refund claimed was not granted by department - Assessee filed an application under section 119(2) with CBDT to condone delay but same was dismissed - Whether approach adopted by CBDT in refusing to condone delay was a pedantic resulting great hardship to petitioner assessee - Held, yes [Paras 9 and 11] [In favour of assessee]

3. Cultivation of agricultural land by assessee himself isn't necessary to claim sec. 54B relief

IT : Once it is established that land owned by assessee has been used for agricultural purpose, he becomes entitled for claim under section 54B on sale of land even if he is not a cultivator himself but gets it cultivated under his supervision

IT : An assessee is entitled to benefit of exemption under section 54B with regard to 'on money' declared in course of search but not reflected in sale register

 [2015] 60 taxmann.com 219 (Ahmedabad - Trib.)

IN THE ITAT AHMEDABAD BENCH 'B'

Shree Bhagwanbhai Revabhai Prajapati v. Assistant Commissioner of Income-tax, Central Circle 1 (4) *

4. CBEC - Service Tax 

CBEC has issued Clarification regarding the provision of Section 73, 76 and 78 of the Finance Act, 1994 and Section 11AC of the Central Excise Act, 1944 after amendments made vide Finance Act. 2015 made with effect from 14.05.2015. An attempt has been made to clarify the doubts on Issuance of a Show Cause Notice (SCN), whether the SCN have to be issued in a case involving the extended period of limitation, where the assessee pays the tax/duty, interest and 15% penalty as prescribed or not and doubts w.r.t the Conclusion of proceedings and who is competent to order conclusion of proceedings if the conditions meriting conclusion of proceedings are fulfilled.

  

5. Tax Payer Service Vertical to address tax payers' grievancesThe government is set to unveil taxpayer service verticals for the indirect tax to deal with grievances and also work out ways to make the system more consumer-friendly and address constant complaints. 

Today (Monday, 24^th Aug 15) the Central Board of Excise and Customs (CBEC) is expected to announce its taxpayer services vertical, headed by a director general, along with two other verticals, at a meeting of chief commissioners that will be also be attended by finance minister.

"The entity will deal with grievances and make sure that services offered to taxpayers, both individuals and companies, improve," said an officer. 

6. Point Of DiscussionTax free gift :- Can I receive any sum of money or immovable property as gift from other than relative and need not pay tax on it ?

Yes, you can receive ANY SUM OF MONEY OR IMMOVABLE PROPERTY (without consideration or at consideration which is less than stamp duty value) as gift from anyone (from other than relative also) in the some cases/occasions, out of which three common occasions are as below :-

(1). On the occassion of marriage of the individual, (i.e. gift can be of any sum of money or immovable property)

(2). under a will 

(3). In contemplation of death of the payer or donor ( if any person even if not a relative, is about to die or suffering from incurable disease can make gift of movable property, it will not be taxable in hands of donee, Income tax act doesn't restrict gift of immovable property in such cases but Indian Succession Act defines that gift should be of movable property only, in contemplation of death ).

Income Tax Case Laws

1.Govt. notifies 'Challan No. ITNS 284' for depositing taxes under Black Money Act

2.High Court has inherent power to review its own judgment, says Supreme Court

3. Penalty couldn't be imposed more than once for same default of not complying with sec. 143(2)

4. Compounding fee paid to Municipal Corporation is in nature of penalty; disallowable

5. Govt. notifies backward areas of Bihar to provide tax incentives for setting-up of industrial units

In Detailed

2. High Court has inherent power to review its own judgment, says Supreme Court

August 19, 2015[2015] 60 taxmann.com 260 (SC)

IT : Application of Code of Civil Procedure to appeals to High Court is not in any way restricted or curtailed by section 260A(7). Section 260A(7) only states that all the provisions that would apply qua appeals in the Code of Civil Procedure would apply to appeals under Section 260A. That does not in any manner suggest either that the other provisions of the Code of Civil Procedure are necessarily excluded or that the High Court's inherent jurisdiction is in any manner affected. High Courts being Courts of Record under Art. 215 of the Constitution of India, the power of review would in fact inhere in them

 [2015] 60 taxmann.com 260 (SC)

SUPREME COURT OF INDIA

Commissioner of Income-tax, Guwahati-I v. Meghalaya Steels Ltd.

3. Penalty couldn't be imposed more than once for same default of not complying with sec. 143(2)

iT: Penalty under section 271(1)(b) cannot be imposed for each and every notice issued under section 143(2), which remained not complied with on part of assessee, but it should be restricted to first default only

 [2015] 60 taxmann.com 131 (Delhi - Trib.)

IN THE ITAT DELHI BENCH 'F'

Smt. Rekha Rani v. Deputy Commissioner of Income-tax, Central Circle-8, New Delhi*

4. Compounding fee paid to Municipal Corporation is in nature of penalty; disallowable

[2015] 60 taxmann.com 54 (Pune - Trib.)

IN THE ITAT PUNE BENCH 'B'

Modi Builders v. Joint Commissioner of Income-tax, Range-5, Pune*

5. Govt. notifies backward areas of Bihar to provide tax incentives for setting-up of industrial units

August 18, 2015

SECTION 32, READ WITH SECTION 32AD, OF THE INCOME-TAX ACT, 1961 - DEPRECIATION - NOTIFIED BACKWARD AREAS IN SPECIFIED DISTRICTS OF STATE OF BIHAR UNDER FIRST PROVISO TO SECTION 32(1)(iia) AND SECTION 32AD(1)

NOTIFICATION NO.71/2015 [F.NO.142/13/2015-TPL], DATED 17-8-2015

In exercise of the powers conferred by section 52 and section 32AD of the Income-tax Act, (43 of 1961) the Central Government herein notifies the following districts of the State of Bihar as backward areas under the first proviso to clause (iia) of sub-section (1) of section 32 and sub-section (1) of section 32AD, namely:—

1.		Patna
2.		Nalanda
3.		Bhojpur
4.		Rohtas
5.		Kaimur
6.		Gaya
7.		Jehanabad
8.		Aurangabad
9.		Nawada
10.		Vaishali
11.		Sheohar
12.		Samastipur
13.		Darbhanga
14.		Madhubani
15.		Purnea
16.		Katihar
17.		Araria
18.		Jamui
19.		Lakhisarai
20.		Supaul
21.		Muzaffarpur.

2. This notification shall come into force on the date of its publication in the Official Gazette.