CA Vishrut Shah
After Collecting cess in the name of Education, Higher Education, Cleanliness (Swachh Bharat Cess) now the government is also keen to put burden of welfare of the Farmers on all of us (Including from the farmers for any service availed by them. Imagine person paying Tax for his own welfare which might not ultimately reach to him !!!!!) so all the person availing any services on or after 1st June,2016 or making any payment for the Services after 1st June,2016 need to make payment of additional 0.5% Cess on the value of Services. It is a move towards reaching neutral rate of GST (Goods & Service Tax) as proposed by the committee of 16% – 18% which most likely as per current situation. (So Government is trying to ensure that people absorb increase in rate in slower installments rather than sudden jump to 16% or 18% which may have practically difficulty in implementation and to reduce oppose at that point of time). Nevertheless to mention the fact that Swachh bharat Cess can be increased upto 2% as passed and provided by the Finance Act,2015. So that hanging sword may hit at any point of time as government may deemed fit and increase our burden more towards Clean India Campaign.
Krishi Kalyan Cess was proposed in the Finance Budget 2016 and which was passed by the parliament under Section 161 of Finance Act,1961 and now applicable on all the services w.e.f. 1st June,2016.
Taxability this cess is leviable on all Services which are taxable as of today. It will not be applicable on manufacturers or traders. It will be equally leviable where service tax is required to be paid under reverse charge mechanism. However it will not be applicable on the services which are totally exempt from the payment of services tax.
It will be applicable at the rate of 0.5% on the entire value of service like service tax (Government may be thinking that cost required be incurred for Swachh Bharat Abhiyan and Krishi Kalyan shall be same). So now the effective rate of Service Tax shall come to 15% on Value of Service Provided.
However wherever there is abatement applicable proportionately abatement shall be applicable to Krishi Kalyan Cess also. Hence in case of real estate construction services where abatement is 30% the effective rate of Krishi Kalyan Cess would be 0.15%. Similar would be the impact in case of works contract and restaurant services etc.
Cenvat Credit :-
Only Service provider can avail the CENVAT Credit of this cess, Manufacturers cannot avail CENVAT of the same. Meaning thereby if there is any manufacturer who is paying service tax under reverse charge mechanism for any services that there will be no cenvat credit shall be allowed to them for the payment of Krishi Kalyan Cess and it will straight away add to the cost. There seems no logic for such additional burden on manufacturers specially where government is pushing up towards GST regime where such cascading effect is required to be removed for better and efficient tax structuring. This would hamper the business and their profitability. (Government may have thought that with Swachh bharat cess people are accustomed to the non creditable cess payment so it will not affect the industry and they will accept it. However in my opinion there needs to be come representations required to be mady at industry association level to remove the same allow common credit to all kind of assessee)
Also the credit of Krishi Kalyan Cess shall be available for the payment of Krishi Kalyan Cess only. Also it is clarified that the said cenvat credit shall not be adjustable when payment of Krishi Kalyan Cess is required to be made under Reverse Charge Mechanism. Hence Cesspayable at the time of RCM will have to be paid by challan only
Accounting codes :-
CBEC vide circular No. 194/04/2016-ST dated 26.05.2016 have prescribed following accounting code for Krishi Kalyan Cess.
Basic Cess :- 00441509
Interest on Cess :- 00441510
Penalty on Cess :- 00441512
SEZ units are entitled to claim refund of Krishi Kalyan Cess paid on input services along with service tax. Also rebate of Krishi Kalyan Cess paid on input services in the course of providing export of services shall be also available.
Point of Taxation :-
Point of taxation for levying Krishi Kalyan Cess would be determined as per Rule 5 of the Point of Taxation Rules, 2011 since it is a new levy.
If invoice is issued and payment is received before June 1, 2016, it would not be levied. In all other cases where invoices were issued prior to 1st June,2016 but payment thereon is received on or after 1st of June 2016 so it will have to be paid on all outstanding debtors as on 31st May, 2016. In cases where advance payment has been received prior to 1st June,2016 then the invoice for the same can be issued till 15th June,2016 without levying Krishi Kalyan Cess, for any invoice issued on or after 15tht June,2016 it will be applicable.
In case of Service Tax need to paid under Reverse Charge Mechanism where invoice are issued prior to 1st June 2016 but payment is made on or after 1st June 2016Krishi Kalyan Cess will not be payable. In all other case it will be payable.
(The Author is Tax & Management Consultant and can be reached on +91-9824798534 or on firstname.lastname@example.org)