CA Gaurav Gupta
Impact of Krishi Kalyan Cess (KKC) on Point of taxation
As the effective rate of tax on services is to be increased from 14.5% (14% Service Tax + 0.5% SBC + 0.5% KKC) to 15% (14% Service Tax + 0.5% SBC + 0.5% KKC) w.e.f June 1, 2016 the applicable rates in different scenarios in case of existing taxable services are as under:
|Time of Provision of Service *||Time of Invoicing||Time of Payment||Point of Taxation Rule||Rate of Service Tax|
|Before Rate Change||After||After||5||New|
|Before Rate Change||Before||After||5||New|
|Before Rate Change||After||Before||5||Old|
|After Rate Change||Before||After||5||New|
|After Rate Change||Before||Before||5||Old|
|After Rate Change||After||Before||5||Old if invoice raised
On or before 14.6.2016
*Before / Before Rate change means before 01.06.2016 in the above chart. Similar reading is to be made for After the rate change (i.e. after 01.06.2016).
|Changes in Rule 6(3) of Cenvat Credit Rules, 2004|
|Particulars||Cenvat Allowed||Cenvat Dis Allowed|
|Cenvat specifically related to exempted services||0%||100%|
|Cenvat specifically related to Taxable services||100%||0%|
|Common Cenvat not bifurcated||Allowed proportionately as per Ratio of Taxable and Exempt Services|
1. Cenvat Credit of Krishi Kalyan Cess (KKC) can be utilised against output liability of KKC only.
2. No Cenvat Credit of Swachh Bharat Cess (SBC) allowed.
3. Krishi Kalyan cess is to be disclosed separately on Invoice
4. Krishi Kalyan cess is to be paid on all the debtors whose payments are received post May 31, 2016 and its point of taxation would the time of receipt of payment.
5. Accounting Codes for Krishi Kalyan Cess
FAQ on Krishi Kalyan Cess (KKC)
1. What is Krishi Kalyan Cess (KKC)?
It is a Cess which shall be levied and collected in accordance with the provisions of Chapter VI of the Finance Act, 2016,called Krishi Kalyan Cess, as service tax on any or all of taxable services at the rate of 0.5% of the value of taxable service.
2. What is the date of implementation of KKC?
The Central Government has appointed 1st day of June, 2016 as the date from which provisions of Krishi Kalyan Cess will come into effect.
3. Whether KKC would be leviable on exempted services and services in the negative list?
Notification No. 28/2016 dated 26-05-2016 provides that Krishi Kalyan Cess is not leviable on Services mentioned in “Negative List” and “Mega Exemption List”. Further, no KKC will be levied on the activity which is excluded from the definition of service under Section 65B(44) of the Finance Act.
4. Why has KKC been imposed?
KKC has been imposed for the purposes of financing and promoting initiatives to improve agriculture or for any other purpose relating thereto.
5. Where will the money collected under KKC go?
The proceeds of the Krishi Kalyan Cess shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in this behalf, utilise such sums of money of the Krishi Kalyan Cess for such specified purposes.
6. Whether separate accounting code will be there for Krishi Kalyan Cess?
|Krishi Kalyan Cess (Minor Head)||Tax Collection||Other Receipts||Deduct Refunds||Penalties|
Yes, for payment of Krishi Kalyan Cess, a separate accounting code is notified vide Circular 194/04/2016 dated 26-05-2016. These are as follows:-
7. How will the KKC be calculated?
KKC would be calculated in the same way as Service tax is calculated. Therefore, SBC would be levied on the taxable value of services as is used for levy of service tax. Unlike Education Cess, KKC is not to be calculated on Service Tax but on the taxable value of the service provided
8. Whether KKC would be required to be mentioned separately in invoice?
KKC would be levied, charged, collected and paid to Government independent of service tax. This needs to be charged separately on the invoice, accounted for separately in the books of account and paid separately under separate accounting code which would be notified shortly. KKC may be charged separately after service tax as a different line item in invoice. In absence, the same could be demanded by the Central Excise officer.
9. Whether alternate rate as applicable to Service Tax under sub-rules 7, 7A, 7B, 7C of rule 6 of STR, 1994 also applies to KKC?
Yes, the alternate rate for payment of Tax as applicable to Service Tax under sub-rules 7, 7A, 7B, 7C of rule 6 of STR, 1994 shall also apply in similar proportion to KKC. New sub-rule 7E is inserted vide Notification No. 31/2016 dated 26-05-2016 which provides for the option to pay KKC at the composition rates instead of paying at the rate specified in sub-section (2) of section 161 of the Finance Act, 2016 (28 of 2016).
10. Whether Cenvat credit of payment of KKC is permissible under Cenvat Credit Rules, 2004?
Yes. 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. You can also claim the refund of KKC in service tax.
11. Whether refund of KKC is permissible under Cenvat Credit Rules, 2004?
Refund of this KKC shall be allowed to Exporter of Service when his output services are considered as export under Rule 6A of Service Tax Rules, 1994.
12. Whether rebate can be claimed against Krishi Kalyan Cess paid on all services, used in providing services exported in terms of rule 6A of the Service Tax Rules?
Yes, Notification No. 29/2016-Service Tax dated 26-05-2016 allows the rebate claim of Krishi Kalyan Cess paid on all services, used in providing services exported in terms of rule 6A of the Service Tax Rules, 1994.
13. In case of services covered by Abatement, what would be effective rate of tax?
Taxable Services, on which service tax is leviable on a certain percentage of value of taxable service under Notification No.26/2012-Service Tax dated 20th June, 2012, will attract KKC on the same percentage of value of services. For eg., in case of accommodation services, Service Tax is applicable on 70% of the value of services. Similarly, KKC would be applicable on 70% value of services only. (Notification No. 28/2016-Service Tax dated 26-05-2016).
14. Is Krishi Kalyan Cess applicable on Reverse Charge Mechanism (RCM) service?
Yes. Hence, KKC is payable along with service tax on the services availed and covered under reverse charge mechanism. Notification No. 27/2016-Service Tax dated 26-05-2016 provides that Notification No. 30/2012-Service Tax dated 20-06-2012, shall be applicable mutatis mutandis for the purposes of Krishi Kalyan Cess.
15. What would be the liability in case of Reverse Charge Services, where services have been received prior to 1.6.2016, but consideration paid post 1.6.2016?
In case of reverse charge services, point of taxation as per Rule 7 of Point of Taxation Rules, would be the date on which consideration is paid to service provider. However, if the payment is not made within three months from the date of invoice, in such cases, point of taxation would be the day next to such three months.
Further, 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.
Also, Provided also that where there is 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. Hence, in such case Krishi kalyan Cess would be payable in similar manner.
16. How does Krishi Kalyan Cess apply on ‘Works Contract Service’?
Notification No. 28/2016-ST dated 26-05-2016 provides that the value of services shall be determined in accordance with the 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% (15%*40%) and 10.5% (15%*70%) respectively. Similar treatment would be accorded to restaurant and catering services as well.
17. What would be the point of taxation for Krishi Kalyan Cess?
Point of taxation means the point when a service shall be deemed to have been provided. KKC shall be covered under Rule 5 of Point of taxation Rules 2011. Thus, all services where payment has not been received prior to 01.06.2016, KKC shall be levied even though such services have been provided prior to such date. The situation can be explained as per the following chart:
Point of Taxation (Date of applicability – 01.06.2016)
|Situation||Services provided||Invoice Issued||Payment received||Whether KKC applicable|
|Situation D||Before||On or before 14.06.2016||Before||No|
|Situation E||Before||After 14.06.2016||Before||Yes|
|Situation F||After||On or before 14.06.2016||Before||No|
|Situation G||After||After 14.06.2016||Before||Yes|
18. Whether refund is available in case of KKC paid on specified services used in SEZ?
Yes, Refund of KKC paid on specified services used in SEZ is available. Notification No. 30/2016-ST dated 26-05-2016 enables the SEZ unit or the developer for refund of the KKC paid on the specified services on which ab-initio exemption is admissible but not claimed.
19. Is KKC similar to the Krishi Kalyan Surcharge?
No, Krishi Kalyan Cess is different from the Krishi Kalyan Surcharge which is announced by the Government in the same Union Budget, 2016-17. In order to provide a stable and predictable taxation regime and reduce black money, it was announced in the budget that domestic tax payers can declare undisclosed income or such income represented in the form of any asset by paying tax at 30%, and surcharge (means an addition to the existing tax) at 7.5% and penalty at 7.5%, which is a total of 45% of the undisclosed income. Such declarants will have immunity from prosecution. The Finance Minister while declaring the above provision mentioned that Surcharge levied at 7.5% of the undisclosed income will be called as Krishi Kalyan Surcharge, to be used for agriculture and rural economy. While KKC is on Services, Krishi Kalyan Surcharge shall be levied on undisclosed income.
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