While the taxpayers have been rejoicing with the introduction of GST that levy of Cess has been done away with, there are constitutional powers granted to GST Council for levy of cess during a national calamity/disaster. The said power has been exercised by the GST council and the state Government of Kerala, levying ‘Kerala Flood Cess’ (hereinafter abbreviated as ‘Cess’ or ‘KFC’ for brevity) for accumulating funds for re-developing Kerala on account of devastating floods in the state in August 2018. The provisions regarding the KFC has been discussed in details under –
1. Effective date and validity of Kerala Flood Cess
- While the said cess was originally proposed to be levied w.e.f 01 June 2019 as per Kerala Flood Cess Rules, 2019 (KFC Rules), the aforesaid Rules were subsequently amended on 31 May 2019 to postpone the effective date to 01 July 2019, due to the issues concerned with valuation for the purpose of GST (the same has been explained in detail in the ensuing paragraphs).
- Although the validity of the cess does not form part of the notification, it is intended that the said cess shall remain valid till 2 years.
2. Applicability and Rate of Kerala Flood Cess
- The Cess is applicable on all intra-state supplies of goods or services or both, made by taxable person to an unregistered person (i.e. B2C supplies).
- The Cess is required to be separately shown on the invoice.
- The rates are as under –
|Rate of GST (CGST+SGST)
||Rate of KFC*
|Goods taxable at 3%
|Goods taxable at 5%/0.5%
|Other taxable goods (12%/18%/28%)
|All taxable services
*The above rates are applicable on taxable value as per the provisions of GST Law.
3. Due date and Compliances related to Kerala Flood Cess
- An additional return in Form KFC-A needs to be filed by all the taxpayers liable to collect and pay the cess on or before the due date of furnishing of Form GSTR-3B, which is 20th of the subsequent month.
- The said return will have to be filed online on the official tax portal of Kerala keralataxes.gov.in and the payment of cess is required to be made at the time of furnishing the said return.
- Taxpayers are required to generate one time user ID and password on the portal for making payment and furnishing the return.
- Important to note at the time of filing KFC-A is to ensure that the said return matches with the details disclosed in corresponding head of GSTR-1 i.e. B2CS.
4. Valuation for Kerala Flood Cess
- KFC rules prescribe straight valuation mechanism for levy of the cess i.e. the taxable value as per the provisions GST Law.
- However, there exist an ambiguity on the value to be considered for levy of GST (CGST+SGST) which is explained as under –
- Section 15 of the CGST/Kerala SGST Act, provides for value on which GST is to be charged.
- The said sections include any taxes, cesses, fees and charges levied under any law other than GST Law i.e. other that CGST, SGST, IGST and UTGST law.
- Hence, by virtue of the above, GST has to be levied on value KFC too, which is will result in cascading of taxes and also, the same is against the principles of taxation. The same has been enumerated in the example –
||Amount (without levy of KFC)
||Amount (with levy of KFC-as per existing provisions)
||Amount (with levy of KFC-after amendment in GST Law)#
|Taxable Value (assumed)
|Taxable value for GST
- From the above example, it is amply clear that for a goods/service with base price of 100, the cost to customer increases by Rs.1.18 which ideally should increase by Re. 1, as can be seen from column 3 and 4 above.
- Considering the above ambiguity in valuation for GST, the Government of Kerala has postponed the effective date for levy of KFC from 01 June 2019 to 01 July 2019.
- The said issue in being expected to be addressed in the in the upcoming meeting of GST council and necessary changes are expected to adhere to valuation as enumerated in column 4 above.
- While the effective date has been postponed, the taxpayers in Kerala should start preparing themselves to comply with the provisions of KFC Rules.
- Filing of additional return i.e. KFC-A will also increase in compliance cost for taxpayers in Kerala.
- GST Council in its upcoming meeting expected to be scheduled in first fort-night of June 2019, should bring in clarity on the valuation mechanism to be adopted.