The enabling provisions for KRISHI KALYAN CESS (KKC) are contained in Chapter – VI of Finance Act’ 2016. As per the provisions, KKC shall be applicable at 0.5% on all taxable services and the proceeds of KKC 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.
The moot question to be decided in the present article is that, whether this KKC would be applicable on the services provided prior to 1st June’ 2016.
SECTION 67A SPECIFIES THE RATE OF SERVICE TAX
In this respect it is mentioned that the provisions concerning the rate of service tax was first time introduced in Service Tax Law by inserting Rule 5B in Service Tax Rules, 1994 by N/No 03/2011 dated 1st March’ 2011 w.e.f 1st April’ 2011. This rule dealt with “Date for Determination of Rate of Service Tax”. Rule 5B is extracted below:
“5B. Date for determination of rate —–
The rate of tax in case of services provided, or to be provided, shall be the rate prevailing at the time when the services are deemed to have been provided under this rules made in this regard.”
Thus, Rule 5B gives the reference to POT Rules’ 2011 for determining the date for taking rate of service tax. Any date prescribed by the POT Rules’ 2011 is taken for the rate of service tax.
However, Rule 5B was omitted with effect from 01.07.2012. With effect from 28.05.2012 a new Section 67A was introduced in Finance Act, 1994. The title of section 67A stated as “Date of determination of rate of tax, value of taxable service and rate of exchange”. Section 67A is reproduced below:
“The rate of service tax, value of a taxable service and rate of exchange, if any,
The present section specifies the date of actual provision of service as the relevant date for rate of service tax. It does not make any reference to the deemed provision of service.
Finance Act’ 2016 amended Section 67A w.e.f. 14th May’ 2016. Section 67A is being amended to provide specific rule making powers in respect of Point of Taxation Rules, 2011. In Section 67A, a new sub section (2) has been inserted which states as follows:-
“(2) The time or the point in time with respect to the rate of service tax shall be such as may be prescribed.”
Point of Taxation Rules, 2011 is also being amended accordingly. In the opening paragraph of Point of Taxation Rules’ 2011, after the words “powers conferred under”, the word “sub-section (2) of section 67A and” shall be inserted with effect from 14th May’ 2016 i.e. from the date of enforcement of the Finance Act, 2016.
Thus, the rate of service tax shall now be taken from the Point of Taxation Rules’ 2011. The present amendment would come into force from 14th May’ 2016.
APPLICABILITY OF RULE 5 OF POT RULES’ 2011 FOR KRISHI KALYAN CESS
As per the provisions of Rule 5 of POT Rules’ 2011, it applies when a new service comes into the service tax net. Rule 5 intends to exempt new services in a limited sense. It provides for non-payment of service tax on services which are rendered after they have become taxable. It provides that no service tax is required to be paid in the following case:-
(a) If the invoice has been issued and the payment received against such invoice before such service became taxable;
(b) Payment has been 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.
Now, whether the applicability of ‘Krishi Kalyan Cess’ would be treated as a new service to be governed by the provisions of Rule 5 of POTR?
In this respect, following explanations has been inserted in Rule 5 w.e.f. 1st March’ 2016 by N/No 10/2016-ST Dated 1st March’ 2016 stating that the provisions of Rule 5 shall also be made applicable for new levy. The explanations are reproduced below:-
“Explanation 1.- This rule shall apply mutatis mutandis in case of new levy on services.
Explanation 2.- New levy or tax shall be payable on all the cases other than specified above.”
Thus, in case of new levy of ‘Krishi Kalyan Cess’, the provisions of present Rule 5 needs to be referred.
As per Rule 5, KKC shall not be payable in the following cases:-
(i) Receipt of Payment and Issuance of Invoice prior to such event
Receipt of Payment prior to such event and Issuance of Invoice within 14 days of such event.
In all the other cases, i.e payment received after 1st June’ 2016 or payment received prior to 1st June’ 2016 but invoice issued after 14th June’ 2016, KKC would be payable.
This can better be understood from the following illustration:
Determine liability for Krishi kalyan Cess in following cases, if Krishi Kalyan Cess is applicable for the first time from 01-06-2016.
|Date of Service||Date of Invoice (DOI)||Date of Payment (DOP)||Whether Service Tax Applicable?|
|05.06.2016||30.05.2016||29-05-2016||KKC not applicable, as both DOI and DOP are before 01-06-2016.|
|05.06.2016||14.06.2016||29-05-2016||KKC not applicable, as DOP is before 01-06-2016 and DOI is within 14 days from the date of change.|
|05.06.2016||16.06.2016||29-05-2016||KKC applicable, as DOP is before 01-06-2016 however DOI is not within 14 days from the date of change i.e. 01-06-2016|
|30.05.2016||29.05.2016||05-06-2016||KKC applicable, as payment received after the date of change.|
APPLICABILITY OF KRISHI KALYAN CESS ON DEBTORS AS ON 31ST May’ 2016
As per the understanding prevalent in the industry, KKC shall be payable on all the debtors as on 31st May’ 2016. This is on the basis of reasoning that the Rule 5 of POT Rules’ 2011 is to be seen for the applicability of KKC and as per Rule 5, KKC is payable if the payment is received after 1st June’ 2016.
In this respect, the authors opines that the provisions of Rule 5 of POT Rules’ 2011 is to be referred only for the service provided w.e.f. 14th May’ 2016 consequent to the amendment made in Section 67A of Finance Act’ 1994 by Finance Act’ 2016 w.e.f. 14th May’ 2016. Prior to this period, the rate of service tax (and also the KKC, as all the provisions of Service tax law applies to KKC) shall be governed by Section 67A as the date of actual provision of service.
WHETHER KRISHI KALYAN CESS CAN HAVE RETROSPECTIVE EFFECT
Section 66B of Finance Act’ 1994 deals with the chargeability aspect of Service Tax w.e.f. 1st July’ 2012. Section 66B is reproduced below:-
SECTION 66B. Charge of service tax on and after Finance Act, 2012. – There shall be levied a tax (hereinafter referred to as the service tax) at the rate of fourteen per cent on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable territory by one person to another and collected in such manner as may be prescribed.
Thus, the charge of service tax has been fixed at the stage of provision of service.
In this respect following case by Supreme Court is relevant:
Collector of Central Excise, Hyderabad Vs Vazir Sultan Tobacco Co Ltd [2002-TIOL-215-SC-CX]
As per the facts of the present case, the special excise duty was being levied with effect from March 1, 1988. In other words, there was, in effect, no special excise duty until February 28, 1988. The Apex court held as below:-
“4. Sri Soli J. Sorabjee, learned counsel appearing for respondents, supported the reasoning and conclusion of the Tribunal. He submitted that the duties of excise are leviable only upon the manufacture or production of the goods as contemplated by Entry 84 of List-I of the Seventh Schedule to the Constitution. The mere fact that, for the sake of convenience, the duty is collected at the stage of removal cannot and does not change the character of the tax. It is upon the manufacture or production of goods and not on any other basis. The special excise duty is a separate and distinct levy from the Central Excise duties. It is levied for the first time by Section 37 of the Finance Act, 1978 on and with effect from March 1, 1978. Counsel submitted that when the goods in question were manufactured, there was no levy of special excise duty. If there is no levy of special excise duty on the date of their manufacture or production, it cannot attach at the stage of removal. Saying otherwise, the learned counsel contended, would detract from the very concept of duties of excise. Learned counsel also relied upon certain decisions both of this Court and High Courts in support of his submission.
5. We are inclined to agree with Sri Sorabjee…….”
Thus, in the present case, the KKC being a separate tax, can be made applicable only when it is applicable at the time of provisioning of services. A mere assertion in rule cannot override the provisions of Act to fasten the liability of KKC on the basis of receipt of payment.
The provisions of Rule 5 of POT Rules’ 2011 is to be seen for the applicability of KKC, however, only for the services provided w.e.f. 14th May’ 2016 when Section 67A was amended to refer POT Rules for Rate of service tax. For the services provided prior to 14th May’ 2016, no KKC is payable even if payment is received post 1st June’ 2016.
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(CA Raman Singla, Partner – Indirect Tax , Devalya Advisory LLP, Mob: +91 9899834353, Mail: email@example.com)