KKC IS APPLICABLE ON SERVICE PROVIDER AND NOT ON SERVICE RECIPIENT FOR THE SERVICES PROVIDED UPTO 31.05.2016
KKC (Krishi Kalyan Cess) is applicable on all services w.e.f. 01.06.2016. After introduction of KKC now effective rate of Service Tax will be 15% on all the services. The purpose of KKC is financing and promoting initiative to improve agriculture or for any purpose relating thereto. KKC is a new levy.
SERVICE PROVIDER:-
Since, KKC is new levy hence it will be governed by Rule 5 of Point of Taxation Rules, 2011 in case of Service Provider. Rule 5 of Point of Taxation Rules, 2011 is reproduced below for reference:-
Rule 5. Payment of Tax in case of new service:-
Where a service is taxed for the first time, then-
a) No tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such invoice became taxable;
b) No tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within fourteen days of the date when the service is taxed for the first time.
As per Rule 5, Service Provider need not to pay KKC when the invoice has been issued and payment has been received before service became taxable or if the payment has been received before service became taxable and invoice issued with 14 days of the date when service became taxable.
In both the circumstances, payment has been received before the date when the service became taxable. Hence, in any case, if the payment is realized after the service became taxable then KKC is payable irrespective of the fact that when the service was provided or invoice was issued.
SERVICE RECIPIENT:-
Point of Taxation in case of Service Recipient is governed by Rule 7 of Point of Taxation Rules, 2011. Rule 7 of POT Rules, 2011 is reproduced below for reference:-
RULE 7. Determination of point of taxation in case of specified services or persons:-
Notwithstanding anything contained in these rules, the point of taxation in respect of the persons required to pay tax as recipients of service under the rules made in this regard in respect of services notified under sub-section (2) of section 68 of the Act, shall be the date on which payment is made:
Provided that, where the payment is not made within a period of six months of the date of invoice, the point of taxation shall be determined as if this rule does not exist:
Provided further that in case of “associated enterprises”, where the person providing the service is located outside India, that 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.
Vide Notification No. 21/2016 – Service Tax dated 30.03.2016, in rule 7 of POT Rules, 2011, after the second proviso following proviso has been inserted:-
“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.”
Now as per above Rule 7, if the payment has not been made but the service has been provided and invoice has been issued, then Point of Taxation shall be the date of issuance of invoice.
It means a if the service has been provided and invoice has been issued but the payment is made when the service became taxable and Service Recipient is liable to make payment under Reverse Charge Mechanism, then Service Recipient is not required to make payment of KKC because point of taxation will be date of issuance of invoice and at the time KKC was not in force.
CONCLUSION:-
Whether the Service is taxable or not depends on the fact that who is required under law to make payment of Service Tax to the Government.
Service provider is required to make the payment of service tax if the payment of Services provided has not been realized before the service becomes taxable. But in the same situation if the service recipient is liable to make the payment to the government then service tax is not payable.
For example:-
Manpower Services provided and Invoice issued before service becomes taxable but payment made after service becomes taxable, Service Recipient not liable to pay KKC.
Consultancy Services provided and invoice issued before Service becomes taxable but payment made after service becomes taxable. Service Provider is liable to pay KKC.
You have quoted old Rule 7. Current Rule starts with “Notwithstanding anything contained in Rules 3, 4 and 8,…”.
Please rectify the same.
Accordingly, Rule 7 cannot override Rule 5. Thus, aforesaid view for RCM also changes.