Swachh Bharat cess to be levied on portion of taxable service

New Delhi: Finance Ministry Thursday said that service tax on restaurant bills will go up from 5.6 percent to 5.8 percent following the levy of 0.5 percent Swachh Bharat cess on all taxable services from November 15.

The Ministry, however, clarified that the Swachh Bharat cess will not apply on those services for which payments have been received prior to November 15 and invoices raised before November 29.

It would mean that the Railway and flight tickets booked before November 15 will not attract the additional levy.

The Swachh Bharat cess, the statement said, will be levied only on the portion of taxable services (after abatement) and will go towards funding of the cleanliness drive, a pet project of Prime Minister Narendra Modi.

"Swachh Bharat Cess will come into effect from November 15, 2015, at the rate of 0.5 percent on all services, which are presently liable to Service Tax. This will translate into a tax of 50 paisa only on every one hundred rupees worth of taxable services. The proceeds from this cess will be used for financing and promoting Swachh Bharat initiatives," the Ministry said in a statement.

The Ministry clarified that all provisions including those related to computation of taxable value, assessment, exemption, payment, penalty applicable to service tax would apply to Swachh Bharat Cess.

"In case payment has been received before the service became taxable and invoice is raised within 14 days, i.E. Upto November 29, 2015, even then the service tax liability does not arise," it added.

Explaining the provisions, it said, the cess would be calculated on the abated value or value arrived as per the Service Tax (Determination of Value) Rules, 2006.

For restaurants or eating joints having air conditioning facility, the cess would be 0.5 percent of 40 percent of the billed amount i.e. 0.2 percent. "The cumulative service tax and Swachh Bharat Cess liability would be 5.8 percent (14.5 percent of 40 percent) of the total amount charged," it said.

Revenue Secretary Hasmukh Adhia said the cess will be counted on abetted/compounded amount in cases where rate is not 14 percent. Cenvat credit is not available on Swachh Bharat cess, he added. 

The Finance Ministry statement said Swachh Bharat cess will be payable on services which are provided on or after November 15, invoice in respect of which is issued on or after that date and payment is also received on or after that date.

However, Swachh Bharat cess will be payable where service is provided on or after November 15, 2015 but payment is received prior to that date and invoice in respect of such service is not issued by November 29, 2015.

The Finance Ministry issued the clarification after it received queries with respect to the levy of Swachh Bharat Cess with regard to value of the value of taxable services for computation of Swachh Bharat Cess, among others.