CBEC issues Notifications relating to Swachh Bharat Cess and amendments in CENVAT Credit Rules

This Tax Alert to provide an update on the Notification No. 2/2016 – ST and Notification No. 3/2016-ST, both dated 3 February 2016, issued by the Central Board of Excise and Customs, Ministry of Finance.

►    Vide Notification No. 2/2016 –ST dated 3 February 2016 the earlier Notification No. 12/2013- ST, dated 1 July 2013 has been amended to allow refund to SEZ unit or SEZ developer in respect of Swachh Bharat Cess (‘SBC’) paid on the specified services on which ab-initio exemption is admissible but not claimed.

►    Further, in case of services that are common to the authorised operation in an SEZ and operation in domestic tariff area, the refund of SBC shall be calculated as follows :

Refund of SBC = Total Service tax amount distributed * Effective rate of SBC / Service tax rate

►    Vide Notification No. 3/2016 –ST dated 3 February 2016 the earlier Notification No. 39/2012- ST, dated 20 June 2012 has been amended to provide for rebate of SBC paid on all services, used in providing services exported in terms of rule 6A of the Service Tax Rules, 1994.
►    Government has also issued Notification No. 2/2016 – CX (NT) dated 3 February 2016 which amends CENVAT Credit Rules 2004 (‘CCR’) as follows:

►    An explanation has been inserted in rule 2 (l) of CCR which defines input services. As per this explanation, sales promotion includes services by way of sale of dutiable goods on commission basis.

►    Proviso to rule 3 (4) has also been inserted to specify that the CENVAT credit of duty paid as specified in rule 3 (1) shall not be utilized for payment of SBC.

►    All the above amendments shall be effective from the date of the Notification i.e. 3 February 2016.

Comments

►    The Notification to deny utilisation of duty to pay SBC, though clarified in FAQ’s released by CBEC earlier, was awaited.

►    Issue of eligibility of refund / rebate of SBC during the interim period i.e. 15 November 2015 to 2 February 2016 requires clarity as the recent Notifications are prospective in nature.

►    Amendment of definition of input services to include services by way of sale of dutiable goods on commission basis will provide a relief to the tax payers since the credit was earlier denied based on Gujarat HC ruling in case of Cadila Healthcare.