CA Neeraj Kumar

As we all know that the Finance Minister of India, Mr. Arun Jaitley had proposed a new cess i.e. Krishi Kalyan Cess(“KKC”) @ 0.50% in budget 2016 on all taxable services for the purposes of financing and promoting initiatives to improve agriculture or for any other purpose relating thereto.

The KKC has been introduced on all taxable services w.e.f. 01-06-2016. The impacts of KKC are discussed as under:

1. Cenvat credit of KKC shall be allowed to provider of taxable service provider for payment of output KKC only.

2. Output KKC cannot be paid by utilizing the Cenvat credit of service tax,

3. Separate ledgers shall be required for accounting of Cenvat credit and Output liability of KKC,

4. KKC shall be charged separately over the invoices,

5. The rate of service tax taxable in the hands of service receiver for services under reverse charge are mentioned below:

S.No. Particulars Rate of tax
1.1 Rent a Cab services (abated value) 6% (15*40%)
1.2 Rent a Cab services (non abated value) 7.50% (15*50%)
2 Supply of manpower services 15% (15*100%)
3.1 Works contract services (Original works) 3% (15*40%*50%)
3.2 Works contract services (other than above) 5.25%(15*70%*50%)
4.1 Goods Transport Agent (GTA) in relation to transport of other than household items 4.50%
4.2 Goods Transport Agent (GTA) in relation to transport of household items 5.60%

6. Point of taxation in case of normal charge shall be governed by Rule 5 of Point of taxation rules. The same is discussed below with example:

S. No. Date of Invoice Date of Payment received Applicability of KKC
1 14-06-2016 20-05-2016 No
2 20-06-2016 20-05-2016 Yes
3 20-05-2016 20-05-2016 No
4 05-06-2016 03-06-2016 Yes
5 20-05-2016 03-06-2016 Yes

As per Rule 5, KKC shall be payable on all debtors pending as on 31-05-2016 by issuing a separate debit note.

7. Point of taxation in case of reverse charge shall be governed by rule 7 of Point of taxation rules.

As per rule 7, the point of taxation shall be the date of payment to the vendor. But as per the Notification no. 21/2016 dated 30-03-2016, the central government has inserted an explanation i.e. “Where Service has been provided and the invoice issued before the date of change of liability, but payment has not been made as on such date, the POT shall be the date of issuance of invoice.”

Therefore if the period of provision of service and issued date of invoice is before change in liability of service receiver then KKC shall not be applicable.

8. The anomaly of KKC on Normal Charge and Reverse Charge:

Case Period of service Date of Invoice Date of Payment KKC payable
Normal Charge Prior to levy of KKC 20-05-2016 05-06-2016 Yes
Reverse Charge Prior to levy of KKC 20-05-2016 05-06-2016 No

Thus, under similar situation, on one hand KKC would be payable in case liability to pay Service tax is on service provider but KKC would not be payable when liability to pay Service tax is on the service recipient under reverse charge.

9. The Central Government has also announced the accounting code vide circular no. 194/04/2016 dated 26-05-2016 as following:-

S.No. Krishi Kalyan Cess Tax collection Other receipts Deduct refunds Penalties
1 0044-00-507 00441509 00441510 00441511 00441512

(Author is associated with M/s. RAPG & Co., Chartered Accountants)

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