Swachh Bharat Cess – Not Cenvatable But Refundable

CMA Vignesh R, Chennai

When the celebrations of Diwali was sounding high on bursting crackers, the Ministry of Finance lit a much higher sounding cracker in the name of Swachh Bharat Cess (SBC) effecting it from 15th of November 2015.

CESS & ITS MESS:

I think the word Cess included in the name has created lot of fog in the minds of the tax payer as to whether SBC should be applied on service tax value or on the value of services. To remove the doubts of tax payers, the Central Board of Excise and Customs (CBEC) came with a FAQ, a couple of days back giving clarity with good examples for all the pattern of payments.

CESS – NOT CENVTABLE

However the most frequently asked question regarding the Cenvatability of SBC came with a negative reply from CBEC that the same cannot be paid out of existing CENVAT or can be used as CENVAT for other SBC payments.

Whereas as a blessing in disguise, certain wordings in the provision of Chapter VI – Swachh Bharat Cess can make the exporters to take a deep breath as SBC will not affect their prices in competing in the International market. The reasons for the same are discussed in brief in below article.

CESS – REFUNDABLE:

Let us unlock certain routes through which the SBC can be applied for refund.

What the provisions of SBC actually say on refund?

Extract of 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 (emphasis mine) 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, 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 thereunder, 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 thereunder, as the case may be (emphasis mine).”

The important things to be noted from the above are given below:

Swachh Bharat Cess should be levied and collected on the value of services like service tax
The provisions of Chapter V and the rules made thereunder, including those relating to refunds and exemptions from tax, interest and imposition of penalty shall apply to SBC also
How the provision of Chapter V deals with refund?

Now let us move on to the rebate/ refund provision stated under Finance Act 1994

Extract of 93A of Finance Act 1994 as amended:

“93A. Power to grant Rebate – Where any goods or services are exported, the Central Government may grant rebate of service tax paid on taxable services which are used as input services for the manufacturing or processing 4“or removal or export of such goods” or for providing any taxable services and such rebate shall be subject to such extent and manner as may be prescribed: Provided that where any rebate has been allowed on any goods or services under this section and the sale proceeds in respect of such goods or consideration in respect of such services are not received by or on behalf of the exporter in India within the time allowed by the Reverse Bank of India under section 8 of the Foreign Exchange Management Act, 1999 (42 of 1999), such rebates shall 5[except under such circumstances or conditions as may be prescribed,] be deemed never to have been allowed and the Central Government may recover or adjust the amount of such rebate in such manner as may be prescribed”

The Ministry of Finance have issued a notification ( 41/2012 – Service Tax dated 29th June 2012) which clearly prescribes the mode through which refund on service tax paid on input services used for export of goods should be applied.

One must note that this section 93A together with the above said notification deals with refund of service tax paid on input services and never deals with refund of CENVAT credit i.e. service tax paid on services availed beyond the place of removal which never qualify as CENVAT credit can be applied for refund if the same is used for the purpose of Export.

When Chapter VI – Swachh Bharat Cess provides that Chapter V of service tax and rules applies to SBC levied and paid on the value of services, the refund of SBC paid on input services availed for export of goods can also be applied through the same service tax refund route available as per section 93A of the Act.

WAIT AND WATCH:

While I agree that funds collected for certain pre-decided purpose will not result in the benefit of tax payers, still that should not create pain in the hands of tax payer by not allowing SBC paid on input services as CENVAT credit. With a positive thoughts in mind, let us wait and watch for certain good initiation from Ministry of Finance in the upcoming days on the above subject.