With the Budget 2015, the Government of India has taken a deliberate step in its campaign for a ‘Swachh Bharat’ by announcing the Swachh Bharat Cess. The Government has made it clear that the objective to regenerate the country and give to the Indians a new India has to be collective and can only be achieved, if in addition to physical efforts, a financial contribution is made by the citizens of India. This is reflected in the Finance Minister’s Budget Speech:
“It is also proposed to have an enabling provision to levy Swachh Bharat Cess at a rate of 2% or less on all or certain services if need arises. This Cess will be effective from a date to be notified. Resources generated from this cess will be utilised for financing and promoting initiatives towards Swachh Bharat. “
Swachh Bharat Cess is proposed to be introduced in Chapter VI of the Finance Bill, 2015 (“The Bill”) which will provide for the Cess to be levied and collected as Service Tax on all or any of the taxable services, at the rate of 2% on the value of such services , for the purpose of financing and promoting Swachh Bharat initiatives or for any other purpose relating thereto.The Cess will be levied in addition to any cess/ Service Tax collected on such services under 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 in relation to the levy and collection of the Swachh Bharat Cess on taxable services as far as may be apply,as 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.
Thus, Swachh Bharat Cess is proposed to be treated as Service Tax and may be levied on all or any of services, subject to the discretion of the Government. As a matter of course, this Cess will increase the rate of taxable services and in effect the Service Tax rate will increase upto 16%, rather than 14%, as projected by the Finance Minister.
What has to be seen here is whether the Government will also cover services covered under the negative list, exempted services or services exported while imposing Swachh Bharat Cess.
The Bill is also silent on the aspect of availability of Cenvat credit of such Swachh Bharat Cess proposed to be levied by the Government. Likewise, there is no clarity on restrictions, if any that will be imposed on the utilization of credit of Swachh Bharat Cess. These issues will be dealt with by the Government at the time of notifying the services on which Swachh Bharat Cess will be imposed.
On one hand, the Finance Ministry has made it appear that the increase in the rate of Service Tax is only 14%, but the reality is that the Cess takes the increase to upto 16% on all or any of services on which it is imposed. A little trick by the Government, perhaps or a treat, if and when we do get a Swachh Bharat? For that, one has to wait and watch.
[The author is associated with Lakshmikumaran & Sridharan and the views expressed are personal]