CA Anshul Aggarwal

CA Anshul Aggarwal

INTRODUCTION

The Krishi Kalyan Cess (hereinafter referred to as ‘KKC’) shall come into force with effect from 1st June, 2016. The said levy has been imposed by the Central Government by exercising its power under Section 161 of the Finance Act, 2016, which specifically indicates that KKC shall be levied and collected as Service tax @ 0.5% on the value of all taxable services.

Accordingly, the effective rate of tax applicable on taxable services would increase from 14.5% to 15% with effect from 01.06.2016.

It is to be noted that the KKC shall be levied at abated rate with respect to services specified under the Abatement Notification No. 26/2012-ST dated 20.06.2012. it has been clarified that value of taxable services for the purpose of the KKC shall be the value as determined in accordance with the Service tax (Determination of Valuation) Rules, 2006. [Notification No. 28/2016 –S.T. dated 26.05.2016]

Also, the extent to which Service tax is payable by the recipient of service on specified services under the reverse charge mechanism, shall be applicable mutadis mutandis for the purposes of Krishi Kalyan Cess. [Notification No. 27/2016-ST dated 26.05.2016]

Further, Notification No. 39/2012 S.T dated 20-06-2012 has also been amended under which rebate of the whole of the service tax and cess paid on all inputs services which are used in rendering export of service has been granted by the Central Government by exercising the powers conferred by Rule 6A of the Service Tax Rules, 1994, and clause (e) has been inserted in Explanation 1 of the said notification thereby which rebate on export of service shall be available to KKC also. [Notification No. 29/2016-ST dated 26.05.2016]

Furthermore, the person like travel agents, life insurers, lottery distributor/agents etc., liable for paying service tax under sub-rule (7), , (7A), (7B) or (7C)of rule 6 who have the option to pay such amount as determined by multiplying total service tax liability calculated under the respective sub-rules of rule 6 by effective rate of Krishi Kalyan Cess and dividing the product by rate of service tax specified in section 66B of the Finance Act, 1994, during any calendar month or quarter, as the case may be, for discharging the liability for Krishi Kalyan Cess instead of paying Krishi Kalyan Cess at the rate specified in sub-section (2) of section 161 of the Finance Act, 2016 (28 of 2016). [Notification No. 31/2016-ST dated 26.05.2016]

Also, Section 161 of the Finance Act, 2016 provides that all 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 apply for the levy and collection of the KKC. Also, that KKC leviable 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.

CENVAT CREDIT OF KKC

Considering that KKC is levied as Service tax, the credit of KKC levied on input services should be available to a service provider or a manufacturer to discharge the output KKC liability as per the relevant provisions of the CENVAT Credit Rules, 2004. The same has been mentionedunder Para 3.1 of the D.O.F. No.334/8/2016-TRU dated February 29th, 2016 whose relevant extract has been reproduced below as:

“Credit of Krishi Kalyan Cess paid on input services shall be allowed to be used for payment of the proposed Cess on the service provided by a service provider”

Moreover, the CENVAT Credit Rules, 2004 (‘CCR’) in this regards has been also amended by Notification No. 28/2016 C.E. (N.T) dated 26.05.2016whereby various sub-rules of rule 3 of CCR are amended as follows:

After sub rule (1), the following sub rule shall be inserted as:

(1a) A provider of output service shall be allowed to take CENVAT credit of the Krishi Kalyan Cess on taxable services leviable under section 161 of the Finance Act, 2016 (28 of 2016);”

In sub-rule (4), tenth proviso has been inserted restricting the utilization of CENVAT credit availed on any other for payment of KKC as:

“Provided also that the CENVAT credit of any duty specified in sub-rule (1) shall not be utilized for payment of Krishi Kalyan Cess leviable under section 161 of the Finance Act, 2016 (28 of 2016);”

In sub-rule (7), a new clause (d) has been specifically inserted which specifically stated that the CENVAT credit of KKC can be utilized only towards the payment of KKC as:

“(d) Cenvat credit in respect of Krishi Kalyan Cess on taxable services leviable under section 161 of the Finance Act, 2016 (28 of 2016) shall be utilised only towards payment of Krishi Kalyan Cess on taxable services leviable under section 161 of the Finance Act, 2016 (28 of 2016)”

Since, the credit of KKC can be utilized against its only, therefore, it needs to be disclosed separately on invoice and has to be paid separately.Thus, separate account of KKC needs to be maintained in books. The accounting code for making payments in respect of KKC has been notified by Circular No. 194/04/2016-ST dated 26.05.2016 as follows:

S.NoKrishi Kalyan Cess (Minor Head)Tax CollectionOther ReceiptsDeduct RefundsPenalties
10044-00-50700441509004415100044151100441512

POINT OF TAXATION (POT)

It may also be noted that KKC is a new levy and accordingly, it shall be covered under Rule 5 of the Point of Taxation Rules, 2011. The government has also extended the scope of rule 5 vide Notification No. 10/2016 S.T. dated 01-03-2016 by inserting two explanation in the said rule,. The amended rule has been reproduced below as:

Rule 5: Payment of Tax in case of new services

  • no tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such service became taxable;
  • no tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within fourteen days of the date when the service is taxed for the first time.]

Explanation 1.-This rule shall apply mutatis mutandis in case of new levy on services.

Explanation 2.-New  levy  or  tax  shall  be  payable  on  all  the  cases  other  than  specified above.

On the basis of above, the assesse should ensure that the payment against input services shall be made by 31st May, 2016, as KKC would not be leviable as per the aforesaid Rule. Similarly, in case service is provided and payment is received before 31st May, 2016 but invoice has not been raised by the said date, KKC would not be leviable. However, the assesse should ensure that invoice is issued by 14th June, 2016.

Further, in case of a service recipient, POT shall be determined in accordance with rule 7 of POT which has been reproduced below as:

Rule 7:‘Determination of point of taxation in case of specified services or persons’

“Notwithstanding anything [contained in rules 3, 4, or 8], the point of taxation in respect of the persons required to pay tax as recipients of service under the rules made in this regard in respect of services notified under sub-section (2) of section 68 of the Act, shall be the date on which payment is made :

Provided that where the payment is not made within a period of three months of the date of invoice, the point of taxation shall be the date immediately following the said period of three months:

Provided further that in case of “associated enterprises”, where the person providing the service is located outside India, the point of taxation shall be the date of debit in the books of account of the person receiving the service or date of making the payment whichever is earlier:

Provided also that where there is a change in the liability or extent of liability of a person required to pay tax as recipient of service notified under sub-section (2) of section 68 of the Act, in case service has been provided and the invoice issued before the date of such change, but payment has not been made as on such date, the point of taxation shall be the date of issuance of invoice:

Provided also ……. “

On the basis of aforementioned provisions, it can be seen that Rule 7 does not overrule Rule 5 of POT and therefore, Rule 5 is an independent rule. Further, the 3rd proviso so inserted in rule 7 by Notification No.21/2016 S.T dated 30.03.2015 deals with the situation when there is a change in the liability or extent of liability of a person required to pay tax as recipient of service. Such change could arise when there will be change in the rates of abatement, exemption etc., under reverse charge mechanism i.e. it will be a case when liability of a service recipient on existing taxable services which arises due to existing tax/cess got changed. Therefore, the benefit of 3rd proviso of rule 7 shall not be available to the service recipient in case of new levy.

CONCLUSION

As a whole, introducing KKC is a very noble step as the amount so collected from it shall be used for the purposes of financing andpromoting initiatives to improve agriculture or for any other purpose relating thereto. As well if we compare the effective rate of service tax from last two years, it has been increased from 12.36% to 15% thereby making a base ahead for GST.

However, measures like KKC are inflationary in nature as well as not giving the benefit of availment of CENVAT Credit of KKC to manufacturers will result in high cost thereby affecting the initiative of Make in India.

(Author can be reached at anshulaggarwal88@gmail.com)

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  • Rishi Kochar

    Good one