CA Chandra Kishore Bajpai

CA Chandra Kishore BajpaiHonourable Finance Minister in last budget(2015) had increased the service tax rate from 12.36 (including cess ) to 14% . We are at the verge of GST and under GST regime it is expected that rate would be somewhere between 17%-18%, it seems that rate is slowly moving towards coming GST regime rate, further in November 2015 a new levy naming ‘Swachchh bharat Cess’ also introduced and rate became 14.5% w.e.f. 15th November 2015.

Now in budget 2016, Hon’ble Finance Minister announced & proposed a new cess named “KRISHI KALYAN CESS’ It would be imposed at the rate of 0.5% on all taxable service. Thus effective rate of service would be 15% from 1st June 2016.

In this write up I am not going to discuss about GST or comparison between GST & present tax structure but just making an effort to understand implementation of Krishi Kalyan Cess (KKC) in following paragraphs.

Sl.No.Subject
1.What is Cess
2.Chargeability of KKC
3.Date of Applicability of KKC
4.Whether KKC has to shown separately in Invoice?
5.How shall KKC be calculated when abatement available?
6.KKC when liability is under Reverse charge Mechanism
7.KKC when services are exempt or falling under negative list
8.Determination of value of service for KKC purpose
9.How does KKC apply on ‘Works Contract Service?
10What is Accounting Code for payment of KKC?
11.Whether CENVAT is available for KKC
12.What is Point of Taxation (POT) for KKC?
13.POT when Reverse Charge Mechanism applicable?
14.Rebate of KKC
15.Refund of KKC

A Cess is a tax which is collected by the government to be used for a specific purpose. Thus collections from levy of cess can be used only for the purpose for which it has been collected and not for any other purpose, Finance Minister has mentioned in his budget speech that proceeds of KKC would be exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers.

The Finance Minister made the following announcement (vide para 152 of Budget speech) on Krishi Kalyan Cess-

“I propose to impose a Cess, called the Krishi Kalyan Cess, @ 0.5% on all taxable services, proceeds of which would be exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers. The Cess will come into force with effect from 1st June 2016. Input Tax credit of this cess will be available for payment of this cess.”

Thus collection from KKC shall be exclusively used for the benefit of Agriculture & Farmers.

Chargeability of KKC

Clause 158 of Chapter VI of Finance Bill (now Act w.e.f. 14.05.2016) has levied KKC @0.5% on the value of Taxable service and same shall be effective from 01st June 2016.

If value of taxable service is Rs.100 then tax would be calculated as under:-

ParticularsAmount in Rs.
Value of taxable service100
Service Tax @14%14
Add:- Swachcha Bharat Cess @0.5%0.5
Add:- Krishi Kalyan Cess @ 0.5%0.5
Total Value including service tax & cess115

KKC Applicability

KKC shall be levied with effect from 1st June, 2016, thus KKC shall be charged on all services provided on or after 1st June, 2016

Disclosure of KKC on Invoice:-

KKC shall be chargeable on invoices separately as KKC like Swachh Bharat Cess. Charging Service Tax @ 15% (14% Service Tax, 0.50% SBC and 0.50% KKC) is not legally correct.

KKC when abatement is available on the value of service

KKC shall be calculated on the value of taxable service after availing the benefit of abatement for example in case of GTA services abatement is 70% thus service tax is leviable on 30% of the value. Say GTA bill amount is Rs.1000/-

ParticularsAmount in Rs.
Gross value of taxable service1000
Less:- Abatement@70%700
Taxable Value of service300
Service Tax @14%42
Add:- Swachcha Bharat Cess @0.5%1.5
Add:- Krishi Kalyan Cess @ 0.5%1.5
Total Value including service tax & cess45

KKC when liability is under Reverse charge Mechanism

The Central Government vide Notification No. 27/2016-ST dated May 26, 2016, has amended/clarified that the Reverse Charge Notification shall be applicable mutatis mutandis for the purposes of KKC also.

Thus Service recipient liable to pay under reverse charge (Full/partial) shall pay KKC along with service tax on his liability portion.

KKC when services are exempt or falling under negative list

Notification No. 28/2016-ST dated 26 may 2016 has provided that KKC shall not be leviable on services which are exempt by notification issues under section 93(1) or special order issued under section 93(2) of the Finance Act 1994 or otherwise not leviable to service tax under section 66B thereof.

Thus it is cleared that following would not be liable for KKC:-

(i) Activity not falling within meaning of service under section 65B(44) of the Finance Act,

(ii) Services falling under section 66D of the Act i.e. Negative List,

(iii) Service exempted by notification u/s 93(1) 0f the Act i.e.

(a) Exempted services under Mega exemption notification No. 25/2012-ST dated 20.06.2012 as amended time to time)

(b) Abatement value of Service on which certain percentage of the value is exempt through Abatement Notification No 26/2012-ST dated 20.06.2012

(iv) Services exempted by Special Order under section 93(2) of the Act

Determination of value of service for KKC purpose:-

For the purpose of KKC, Value of taxable services shall be the value as determined in accordance with the Service Tax Valuation Rules. Thus value shall be determined first as applicable rule in particular service like in case of works contract, Rule-2A shall determine the value of taxable service then tax shall be calculated thereon.

How does KKC apply on ‘Works Contract Service’?

The value of services would be calculated as per Rule 2A of Service Tax (Determination of Value) Rules, 2006. Tax needs to be applied on the value so arrived at the rate of 15%. Effective rate of tax in case of original works and other than original works would be 6% (40% of 15%) and 10.5% (70% of 15%) respectively.

Payment of KKC:-

KKC shall be paid in accounting head as given under:-

KKC (Minor Head)Tax CollectionOther Reciepts (Interest)Deduct RefundsPenalties
0044-00-50700441509004415100044151100441512

CENVAT of KKC:- ( Notification No. 28/2016-CE (N.T.) dated May 28, 2016)

The cenvat credit of KKC shall be available and shall be utilized only for the payment of KKC. Thus, separate accounts needs to be maintained.

Cenvat credit in respect of KKC shall be utilised only towards payment of KKC.

Point of Taxation for New Levy of KKC:

It is pertinent here to note that Explanation 1 & 2 to Rule 5 of Point of Taxation Rules, 2011 (“the POT Rules”) have been inserted w.e.f March 1, 2016. Explanation 1 provides that point of taxation in case of new levy on services shall be governed by Rule 5 of the POT and as per Explanation 2, new levy or tax shall be payable on all cases other than specified in Rule 5.

Recently vide Notification 35/2016 ST dated 23 June 2016, Government has exempt from levy of KKC if the conditions mentioned in the notification satisfied.

Accordingly it has exempted taxable services from levy of Krishi Kalyan Cess (“KKC”) in cases which satisfies the following two conditions:

– Where invoices have been raised prior to 01.06.2016; and

– Where provision of service has been completed prior to 01.6.2016.

Thus no KKV shall be levied in case where provision of service completed and invoice has been raised prior to 01.06.2016 or.

If both conditions not satisfied , POT shall be determined as per Rule 5 of POT rules.

But it is important to note that this Notification has come into effect with effect from 23.06.2016 and notification is silent about the payment received on opening debtors for the period 01.06.2016 to 22.06.2016.

What will happen where service is not completed fully?

No KKC would be applicable as Notification says that “Provision of service has been completed prior to 01.06.2016”.

Rule 5 of the POT covers two specific situations where new levy shall not be payable:

  1. Invoice issued and payment received against such invoice before such service becomes taxable;
  2. Payment received before the service becomes taxable and invoice has been issued within 14 days of the date when the service is taxed for the first time,

Point of taxation in case of new levy on services shall be governed by Rule 5 of POT Rules. As per the Rule 5 read with explanations, only in two situations (mentioned above), the KKC shall not be payable and in all others, KKC is to be paid.

Sl.

No

Date of service providedInvoice valueInvoice datePayment receivedDate of paymentRemark
125.05.201610000025.05.201610000006.06.2016No KKC as Exempted under Notification No-35/2016
202.06.201610000003.06.201610000006.06.2016KKC applicable as per POTR
325.05.201610000015.06.201610000006.06.2016KKC applicable as per POTR
425.05.201610000028.05.201610000029.5.2016KKC not applicable as per rule 5 of POTR
525.05.201610000028.5.20169000029.5.2016No KKC as Exempted under Notification No-35/2016 even payment received after 31.05.2016
602.06.201610000002.06.201610000029.5.2016KKC not applicable, because receipt of payment before 1 st June 2016 while invoice issued within 14 days from taxability of service
725.05.201610000020.6.201610000030.5.2016Taxable because requirement of issue of invoice either before 01.06.2016 or within 14 days from the date of service is not fulfilled
825.05.201610000020.6.201610000030.5.2016Taxable because requirement of issue of invoice either before 01.06.2016 or within 14 days from the date of service is not fulfilled

What will happen where service is not completed fully?

No KKC would be applicable as Notification says that “Provision of service has been completed prior to 01.06.2016”.

Point of Taxation for KKC under Reverse Charge:-

POT in case of reverse charge is governed by Rule 7 of the POT Rules, In terms of Rule 7 of the POT Rules, point of taxation under reverse charge (except associated enterprises located outside India), shall be as under:

Payment made within 3 monthsDate of Payment
Payment not made within 3 monthsDate immediately following the end of 3 months

In case of associated enterprises, where the person providing the service is located outside India, POT shall be earlier of the following:

  • Date of debit in the books of account of service receiver;
  • Date of Payment

It would not be out of place here to mention that a proviso has been inserted in Rule 7 of the POT Rules vide Notification No. 21/2016-ST dated March 30, 2016, to provide that where there is change in the liability or extent of liability of Service tax to be paid under Reverse Charge:

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 POT shall be the date of issuance of invoice

Rebate of KKC for exports

Vide Notification No. 29/2016-ST dated 26.05.2016, it has been notified that w.e.f. 1.6.2016, rebate of duty or Service Tax used in providing taxable services which are exported, under Notification No. 39/2012-ST dated 20.06.2012 shall also be available to Krishi Kalyan Cess (KKC)

Refund of KKC to Special Economic Zone (SEZ)

Vide Notification No. 30/2016-ST dated 26.05.2016, it has been notified that w.e.f. 1.6.2016, developer of Special Economic Zones (SEZ) or a unit in SEZ under Notification No. 12/2013-ST dated 1.7.2013 shall be entitled to refund of Service Tax paid on specified services on which ab initio exemption is admissible but not claimed and amount distributed to it as per clause III (a) of Notification. Further, refund of KKC shall also be allowed like that of SBC by multiplying total Service Tax distributed to it by sum of effective rates of SBC and KKC and dividing the product by rate of Service Tax as per section 66B of the Finance Act, 1994

Annexures

Effective Rate of Service Tax post 01.06.2016 in case of Abated services

S.No.Income HeadsRates Effective From 01.06.2016
Taxable ValueEffective ST RateEffective SBC RateEffective KKC RateTotal Effective Tax Rate
1Services in relation to financial leasing including hire purchase10%1.40%0.05%0.05%1.50%
2Transport of Goods in containers by rail by any person other than Indian Railways40%5.60%0.20%0.20%6.00%
2ATransport of Goods by Rail other than as specified above30%4.20%0.15%0.15%4.50%
3Transport of Passengers with or without accompanied belongings by Rail30%4.20%0.15%0.15%4.50%
4Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises (including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises70%9.80%0.35%0.35%10.50%
5Transport of passengers by air with or without accompanied belongings in economy class40%5.60%0.20%0.20%6.00%
5ATransport of passengers by air in higher class60%8.40%0.30%0.30%9.00%
6Renting of inns, hotels, Guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes60%8.40%0.30%0.30%9.00%
7Services of goods transport agency in relation to transportation of goods other than household goods30%4.20%0.15%0.15%4.50%

Effective Rate of services where alternate rate is provided post 01.06.2016

 

 

Service Provider

 

 

 

Services

 

 

Effective Service Tax Rate

 

 

Effective SBC

 

 

Effective KKC

 

 

Effective Total Rate

Money ChangerServices in relation to purchase or sale of foreign currency for an amount upto rupees 100,0000.14%0.005%0.005%0.15%
Services in relation to purchase or sale of foreign currency for an amount exceeding Rs. 100,000 but upto rupees 1000,000Rs. 140 + 0.07%Rs. 5 +

0.0025%

Rs. 5 +

0.0025%

Rs. 150 +

0.075%

Services in relation to purchase or sale of foreign currency for an amount exceeding Rs. 1000,000Rs. 770 + 0.014%Rs. 27.5 +

0.0005%

Rs. 27.50

+ 0.0005%

Rs. 825 +

0.015%

LotteryGuarantee payout more than 80%Rs 8200 on every Rs. 10 Lakh (or part thereof)Rs 293 on every Rs 10 Lakh (or part thereof)Rs 293 on every Rs 10 Lakh (or part thereof)Rs 8,786 on every Rs 10 Lakh (or part thereof)
Guarantee payout less than 80%Rs 12,800 on every RS 10 Lakh (or part thereof)Rs 457 on every Rs 10 Lakh (or part thereof)Rs 457 on every Rs 10 Lakh (or part thereof)Rs 13,714 on every RS 10 Lakh (or part thereof)
InsuranceFirst year of Policy3.50%0.125%0.125%3.75%
Subsequent years1.75%0.063%0.063%1.88%
Air Travel AgentDomestic Travel0.70%0.025%0.025%0.75%
Foreign Travel1.40%0.050%0.050%1.50%

Effective Rate of Service Tax post 01.06.2016 in case of Valuation

 

 

 

Particular

 

 

Taxable

Value

Effective Service Tax Rate 

 

Effective

SBC

 

 

Effective

KKC

Total Effective Tax Rate
Works Contract – Original Works40%5.60%0.20%0.20%6.00%
Works Contract – Others70%9.80%0.35%0.35%10.50%
Restaurant40%5.60%0.20%0.20%6.00%
Outdoor Catering60%8.40%0.30%0.30%9.00%

Effective Rate of services in case of reverse charge post 01.06.2016

 

 

 

 

 

 

S.No.

 

 

 

 

 

 

Service

Rates Effective From June 1, 2016
 

 

 

 

Taxable

Value

 

 

Effective Service Tax Rate

Effective Swach Bharat Cess Rate 

Effective Krishi Kalyan Cess

 

 

Total effective Tax

1Rent A Cab – with abatement40%5.60%0.20%0.20%6.00%
2Rent A Cab – without abatement50%7.00%0.25%0.25%7.50%
3Manpower Supply100%14.00%0.50%0.50%15.00%
4Security Services100%14.00%0.50%0.50%15.00%
5Payment to Advocates and Lawyers100%14.00%0.50%0.50%15.00%
6Payment for Sponsorship100%14.00%0.50%0.50%15.00%
7Transportation of Goods By Road30%4.20%0.15%0.15%4.50%
8Payment to Independent Director100%14.00%0.50%0.50%15.00%
9Works Contract- For Original Works20%2.80%0.10%0.10%3.00%
9Works Contract- For Other Works35%4.90%0.18%0.18%5.25%
10Payment to Arbiteral tribunal100%14.00%0.50%0.50%15.00%

Disclaimer- In this write up, I have made an attempt to explain about Krishi Kalyan Cess hoping that it will help you in your day to day compliance work. Though I have made all efforts to make it error free but it is possible that some error might have crept, if it is so please bring it in my notice and I will definitely remove it. If you have any suggestion to improve this book, you are requested to forward the same to us.

I have compiled this information based on the various material available and this write up is purely for informational purpose and sharing knowledge. It is my kind request to go through original statute, notification and circular etc before relying on the matter given here.

If you feel that this has really helped you in improving your knowledge or understanding of the subject matter, I request you to take few minutes out of your precious time and provide your valuable feedback at “cackbajpai@gmail.com”. Your feedback is important and will help in improving it.

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