Pursuing with an objective to finance and promote initiatives to improve agriculture and farmer welfare, the Government announced a new ce...
Pursuing with an objective
to finance and promote initiatives to improve agriculture and farmer welfare,
the Government announced a new cess namely ‘Krishi Kalyan Cess’ (“KKC”), to
be levied at 0.5% on the value of all taxable services w.e.f June 1, 2016. In this
regard, a new Chapter VI is inserted in the Finance Bill, 2016, containing
relevant provisions, which are applicable with enactment of the Finance Act,
2016.
Proceeds of KKC first be
credited to Consolidated Fund of India and the CG may, after due appropriation
made by Parliament by law in this behalf, utilise such sums of money of KKC for
specified purposes
Hence, after levy of KKC,
Service tax rate will increase from 14.5% to 15%, effective from June 1, 2016. In
this regard, there are many queries, which require clarification. We have summarized
these queries through Frequently Asked Questions (FAQs) enumerated below.
In this context, the relevant Chapter of the Finance Act,
2016 is reproduced below:-
“CHAPTER VI
‘Krishi Kalyan Cess’
“161 (1) This Chapter shall come into force on the 1st day of June,
2016.
(2)
There shall be levied and collected in accordance with the provisions of this
Chapter, a cess to be called the Krishi Kalyan Cess, as service tax on all or
any of the taxable services at the rate of 0.5 per cent. on the value of such
services for the purposes of financing and promoting initiatives to improve agriculture or for any
other purpose relating thereto.
(3)The
Krishi Kalyan Cess leviable under sub-section (2) shall be in addition to any
cess or service tax leviable on such taxable services under Chapter V of the
Finance Act, 1994, or under any other law for the time being in force.
(4)The
proceeds of the Krishi Kalyan Cess levied under sub-section (2) 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 purposes specified in
sub-section (2), as it may consider necessary.
(5)The provisions of Chapter V of
the Finance Act, 1994 and the rules made thereunder, including those relating
to refunds and exemptions from tax, interest and imposition of penalty shall,
as far as may be, apply in relation to the levy and collection of the Krishi
Kalyan Cess on taxable services, as they apply in relation to the levy and
collection of tax on such taxable services under the said Chapter or the rules
made thereunder, as the case may be.”
On this issue, the Hon’ble FM in his speech for Budget
2016-17 has stated as under:
“I
propose to impose a Cess, called the Krishi Kalyan Cess, @ 0.5% on all taxable
services, proceeds of which 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. Input Tax credit of this cess
will be available for payment of this cess.”
FAQs on Krishi Kalyan Cess for easy
digest:
Q1: What
is KKC?
Answer: It is a Cess called as Krishi Kalyan Cess, which
shall be levied and collected in accordance with the provisions of Chapter VI
of the Finance Act, 2016, as Service tax on all the taxable services at the
rate of 0.5% on the value of such taxable services.
Q2: For what purpose(s) KKC is proposed to be
levied?
Answer: KKC is proposed to be levied for the purposes of financing
and promoting initiatives to improve agriculture and farmers welfare or for any
other purpose relating thereto.
Q3: What is the date of applicability of KKC?
Answer: KKC would be levied at the rate of 0.5% on the value
of all taxable services with effect from June 1, 2016 vide Section 161 of the
Finance Act, 2016.
Q4: Whether KKC would be leviable on all
taxable services?
Answer: Yes, KKC would be levied on all taxable services. In
this regard, the Central Government vide Notification No. 28/2016-ST dated May
26, 2016 has provided that KKC shall not be leviable on services which are
exempt from Service tax by a Notification issued under Section 93(1) or Special
Order issued under Section 93(2) of the Finance Act, 1994 (“the Finance Act”) or otherwise not leviable to Service tax under
Section 66B thereof.
Q5: Whether KKC would be leviable on an activity
which is excluded from the definition of ‘Service’?
Answer: No, such activity would not be leviable to KKC.
Following activities are excluded from the definition of ‘Service’ under
Section 65B(44) of the Finance Act:
(a)
An activity which constitutes merely,--
(i) a transfer of title in goods or immovable property, by
way of sale, gift or in any other manner; or
(ii) such transfer, delivery or supply of any goods which is
deemed to be a sale within the meaning of clause (29A) of Article 366 of the
Constitution; or
(iii) a transaction in money or actionable claim;
(b)
A provision of service by an employee to the employer in the
course of or in relation to his employment;
(c)
Fees taken in any Court or tribunal established under any law
for the time being in force.
Q6: Whether KKC would be leviable on services contained
in the Negative List of services?
Answer: No, KKC would not be leviable on services contained
in the Negative List of services under Section 66D of the Finance Act.
Q7: Whether KKC would be leviable on exempted
services?
Answer: KKC shall not be leviable on services which are exempt
from Service tax by a Notification issued under Section 93(1) or Special Order
issued under Section 93(2) of the Finance Act. The services exempted by a Notification
issued under Section 93(1) of the Finance Act are as under:
(a)
Services exempted under the Mega Exemption Notification vide
Notification No. 25/2012-ST dated June 20, 2012;
(b)
Services exempted, to specified percentage under the
Abatement Notification No. 26/2012-ST dated June 20, 2012;
Q8: What will be the effective rate of Service tax
w.e.f June 1, 2016 after applicability of KKC?
Answer: The effective rate of Service tax shall be 15% with
effect from June 1, 2016 i.e. Service
tax @ 14%, Swachh Bharat Cess (“SBC”)
@ 0.5% and KKC @ 0.5% on value of taxable services.
Q9: How KKC will be calculated?
Answer: KKC would be calculated in the same way as Service tax
is calculated and would be levied on the gross value of taxable services and
will be computed in accordance with Section 67 of the Finance Act and the Rules
made there under.
Q10: Whether KKC is a ‘Cess on tax’ and we need
to calculate KKC @ 0.5% on the amount of Service tax like we were earlier doing
for calculating Education Cess and SHE Cess?
Answer: No, KKC is not a Cess on Service tax. KKC shall be
levied @ 0.5% on the value of taxable services.
Q11: Whether KKC would be required to be
mentioned separately while raising the invoice?
Answer: KKC would be levied,
charged, collected and paid to the Central Government under
separate accounting head/ code. It is required to charge KKC separately on the
invoice as well as account for the same separately in the books of account and
paid separately under separate accounting code which is notified by the
Government vide Circular No. 194/4/2016-ST dated May 26, 2016. An illustration
showing levy of Service tax and SBC & KKC is given below, assuming Rs. 5,000/- as
value of a taxable service:
Particulars
|
Tax/ Cess (Rs.)
|
Value of taxable service:
(a)
|
5,000/-
|
Add: Service tax @ 14% on
(a)
|
700/-
|
Add: SB Cess @ 0.5% on (a)
|
25/-
|
Add: KKC @ 0.5% on (a)
|
25/-
|
Total:
|
5,750/-
|
Q12: What is the accounting code for KKC?
Answer: The Central
Government vide Circular No. 194/4/2016-ST dated May 26, 2016 has notified separate accounting codes
for payment of KKC in the following manner:
KKC (Minor Head)
|
Tax Collection
|
Other Reciepts (Interest)
|
Deduct Refunds
|
Penalties
|
0044-00-507
|
00441509
|
00441510
|
00441511
|
00441512
|
Q13: How KKC will be calculated for services
where abatement is allowed?
Answer: The Central Government vide Notification No.
28/2016-ST dated May 26, 2016 has clarified that KKC will be levied on value of
taxable services after availing the benefit of abatements by way of an
exemption provided vide Abatement Notification No. 26/2012-ST dated June 20,
2012 i.e. KKC would be computed on abated value of taxable services.
Q14: What will be the effective rate of Service
tax in case of specified services under the Abatement Notification like GTA
services (other than used household goods) after levy of KKC?
Answer:
Service tax is required to be paid on 30% of value of taxable service, after
abatement of 70% as provided under the said Abatement Notification. The
effective rate of Service tax including SBC and KKC would be 4.50% (i.e. 30% of
15%).
Q15: How
KKC would be calculated on specified services covered under Service Tax
(Determination of Value) Rules, 2006 [“the Service Tax Valuation Rules”]?
Answer:
The Central
Government vide Notification No. 28/2016-ST dated May 26, 2016 has clarified
that the value of taxable services for the purpose of KKC shall
be the value as determined in accordance with the Service Tax Valuation Rules.
Q16:
What will be the effective rate of Service tax in case of Works Contract service
after levy of KKC?
Answer:
As per Rule 2A of the Service Tax Valuation Rules, KKC needs to be applied
along with Service tax and SBC on specified portion and the effective rate of
Service tax in case of Works contract Service would be as under:
Ø In
case of original works: 6% (15%*40%); and
Ø Other
than original works: 10.50% (15%*70%)
Q17:
What will be
the effective rate of Service tax in case of AC Restaurant services and Outdoor
catering services?
Answer:
The KKC would be calculated in similar manner on AC Restaurant Services and
Outdoor catering services as calculated for Works Contract service . As per
Rule 2C of the Service Tax Valuation Rules, KKC needs to be applied along with
Service tax and SBC on specified portion. Therefore, the effective rate of
Service tax after KKC would be as under:
Ø In
case of AC Restaurant services: 6% (15%*40%); and
Ø In
case of Outdoor catering services: 9% (15%*60%)
Q18:
How KKC will be
calculated for services under Reverse Charge Mechanism?
Answer: The Central Government vide Notification No.
27/2016-ST dated May 26, 2016, has clarified that the KKC would be leviable on
specified services under the Reverse Charge Notification No.
30/2012-ST dated June 20, 2012 and all provision for chargeability of Service tax shall be
applicable mutatis mutandis for the purposes of KKC also. In other words, KKC
along with Service tax shall be paid on taxable services specified under
Reverse Charge and Partial Reverse Charge Mechanism as well for Service
Receiver to pay the Service tax, SBC and KKC.
Q19: Whether
KKC would be applicable on specified services covered under Rule 6 of the Service
Tax Rules, 1994 [“the Service Tax Rules”] (i.e. Air Travel agent, Life
insurance premium, Purchase and sale of foreign currency and Services by
lottery distributors/selling agents)?
Answer:
Sub-rule (7E) has been inserted under Rule 6 of the Service Tax Rules vide
Notification No. 31/2016-ST dated May 26, 2016, which prescribes that if
Service tax is payable at an alternative rate, KKC would also be computed in
proportion to such alternative rate, in similar manner as it was prescribed at
the time of introduction of SBC:
i.e
Service Tax liability [calculated as per sub-rule (7), (7A), (7B) or
(7C)] X 0.5%/14%
The
option under this sub-rule once exercised, shall apply uniformly in respect of
such services and shall not be changed during a financial year under any
circumstances.
For
example in case of air travel agent services, the KKC would be payable as per the
following rates:
Domestic bookings
|
0.025% [(0.7%*0.5%)/14%]
|
International bookings
|
0.05% [(1.4%*0.5%)/14%]
|
Q20:
What will be the point of taxation (“POT”) for determination of KKC taxability for
a service provider?
Answer:
POT in case of new levy on services shall be governed by Rule 5 of Point of Taxation Rules,
2011 (“the POTR”).
As per Rule 5 read with explanations inserted vide Notification No. 10/2016-ST
dated March 1, 2016, only in following two situations (given below), the KKC
shall not be payable and in all other cases, KKC is to be paid:
Ø Invoice issued and payment
received against such invoice before such service becomes taxable i.e prior to
June 1, 2016
Ø Payment received before
the service becomes taxable i.e prior to June 1, 2016 and invoice has been
issued within 14 days of the date when the service is taxed for the first time
Q21: Whether
KKC would be leviable in following cases in terms of Rule 5 of the POTR?
Update :No KKC if invoice is raised andservices are rendered on or before May 31, 2016 :Notification No. 35/2016-ST dated June 23, 2016
Update :No KKC if invoice is raised andservices are rendered on or before May 31, 2016 :Notification No. 35/2016-ST dated June 23, 2016
Answer:
S. No.
|
Date
of applicability of KKC
|
Date of Invoice
|
Date of Payment Received
|
Applicability of KKC
|
1.
|
1st
June, 2016
|
14thJune,
2016
|
30th
May, 2016
|
No
|
2.
|
1st
June, 2016
|
18thJune,
2016
|
30th
May, 2016
|
Yes
|
3.
|
1st
June, 2016
|
30th
May, 2016
|
30th
May, 2016
|
No
|
4.
|
1st
June, 2016
|
3rdJune,
2016
|
3rdJune,
2016
|
Yes
|
5.
|
1st June, 2016
|
30th May, 2016
|
3rd June, 2016
|
Yes
|
Q22: Whether
KKC is payable with respect to services provided before June 1, 2016?
Answer:
As per Rule 5 of the POTR, KKC is applicable with respect to all taxable
services other than services for which the payment is received before June 1,
2016 and the invoice is issued before June 1, 2016 or within 14 days from June
1, 2016. There is debate that in all cases, other than the two cases specified
in Rule 5, KKC will be applicable even if the service is provided before June
1, 2016.
But
there is legal jurisprudence that if the levy was not applicable at the time of
provision of the service, then merely because the payment is made/ received
afterwards, the same cannot be made applicable. This view is duly supported by
the Hon’ble Supreme Court in the case of All India Federation of Tax Practitioners
Vs. Union of India [2007-TIOL-149-SC-ST] in which it was held that “a
tax on a thing or goods can only be with reference to a taxable event” and the
same contention was upheld again in the case of Association of Leasing &
Financial Service Companies Vs. Union of India [2010 (20) STR 417 (SC)],
where in the Hon’ble Supreme Court observed that the taxable event under the Service tax law is the rendition of service.
Therefore, KKC should not be leviable
on a service rendered prior to June 1, 2016 when KKC was not applicable at the
time of its rendition, merely because its payment is received on or after the
date of levy or the invoice is not issued within 14 days of the date of levy.
Hence,
a clarification is required from the Government before the stated issue open up
unwanted litigation for no benefit to the Department and Trade both.
Q23:
What will be the POT for determination of KKC liability in case of service
receiver under Reverse Charge Mechanism?
Answer: POT in case of Reverse Charge is determined
in accordance with Rule 7 of the POTR. In terms of Rule 7 of the
POTR, point of taxation under reverse charge (except associated enterprises
located outside India), shall be as under:
·
Payment made within 3 months –
Date of payment;
·
Payment not made within 3 months -
Date immediately following the end of 3 months
In case of associated
enterprises, where the person providing the service is located outside India, POT
shall be earlier of the following:
·
Date of debit in the books of
account of service receiver;
·
Date of Payment
Recently a proviso has been
inserted in the said rule vide Notification No. 21/2016-ST dated March 30,
2016, which provides that where there is change in the liability or extent of
liability of Service tax to be paid under Reverse Charge, the POT will be
determined as under:
·
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 POT shall be à the date of issuance of invoice.
Q24:
When there can be change in the liability or extent of liability of Service tax
to be paid by service receiver under Reverse Charge?
Answer:
There can
be change in the liability or extent of liability of Service tax to be paid by
service receiver under Reverse Charge because of changes in abatement rate,
composition rate, change in rate of Service tax, applicability of any new levy
like KKC w.e.f June 1, 2016 etc.
Q25:
Whether KKC would be leviable when GTA service has been provided on May 20,
2016 and invoice issued on May 25, 2016 but the payment was made on June 4,
2016?
Answer: In case of GTA services,
the liability to pay Service tax is on the service recipient (Consignor/
Consignee liable to pay freight). Hence, POT would be governed by Rule 7 of the
POTR (as amended) in the following manner:
Date of service
|
Date of invoice (DOI)
|
Date of payment (DOP)
|
Applicability of KKC
|
20.05.2016
|
25.05.2016
|
04.06.2016
|
POT shall be DOI as per amended Rule 7 of
the POTR: KKC not applicable
|
Q26: How
the liability on service receiver in case of new levy has changed after
insertion of proviso in Rule 7 of the POTR?
Answer: In order to understand
implication of proviso inserted in Rule 7 of the POTR, let us take the same
example i.e. GTA service has been provided on May 20, 2016 and invoice issued
on May 25, 2016 but the payment was made on June 4, 2016. Now, a comparative
analysis of liability of pay KKC (w.e.f. June 1, 2016) under Erstwhile Rule 7
and amended Rule 7 is given as under:
Analyses of Erstwhile Rule 7
Vs. Amended Rule 7:
Date of service
|
Date of invoice (DOI)
|
Date of payment (DOP)
|
Applicability of KKC
|
|
As per
erstwhile Rule 7
|
20.05.2016
|
25.05.2016
|
04.06.2016
|
POT would have been DOP: KKC applicable
|
As per amended
Rule 7
|
20.05.2016
|
25.05.2016
|
04.06.2016
|
POT shall be DOI: KKC not applicable
|
Q27: Please
explain how liability to pay KKC would be determined for both service provider
(under Forward Charge) and service receiver (under Reverse Charge), when services
have been provided on May 20, 2016 and invoice issued on May 25, 2016 but the
payment was made on June 4, 2016?
Answer: Whereas POT for new levy in case of service provider
is governed by Rule 5 of the POTR, POT in case of service receiver liable to
pay Service tax under Reverse Charge is governed by Rule 7 of the POTR. A
comparative analysis of liability to pay KKC in the hands of service provider (under
Forward Charge) and service receiver (under Reverse Charge) is given as under:
Service Provider Vs. Service
Receiver: Anomaly
Date of service
|
Date of invoice (DOI)
|
Date of payment (DOP)
|
Applicable Rule
|
Applicability of KKC
|
|
Liability of SP
under forward charge
|
20.05.2016
|
25.05.2016
|
04.06.2016
|
Rule 5(a) of the POTR
|
KKC applicable
|
Liability of SR
under reverse charge
|
20.05.2016
|
25.05.2016
|
04.06.2016
|
Rule 7 of the POTR
|
POT shall be DOI: KKC not
applicable
|
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. This is again
creating anomaly and confusion among the Trade.
Q28: Whether Cenvat credit of the KKC is
available?
Answer: The Central Government vide Notification No.
28/2016-CE (N.T.) dated May 26, 2016, has amended Rule 3 of the Credit Rules to
provide that:
Ø A provider of output
service shall be allowed to take Cenvat credit of the KKC on taxable services
leviable under Section 161 of the Act;
Ø Cenvat credit of any duty
specified in Rule 3(1) of the Cenvat Credit Rules, 2004 (“the Credit Rules”) shall not be utilised for payment of KKC;
Ø Cenvat credit in respect
of KKC shall be utilised only towards payment of KKC.
Q29: Can the Cenvat credit of Service tax be
used for payment of KKC?
Answer: No, Cenvat credit of Service tax cannot be used for
payment of KKC. Only Cenvat credit of KKC paid on input services shall be
allowed to be used for payment of the KKC on taxable services provided by a
service provider.
Q30: Whether the Cenvat credit of KKC is
available to a Manufacturer?
Answer: No, the Cenvat credit of KKC is not available to
manufacturer. In terms of amended Rule 3 of the Credit Rules, Cenvat credit of
KKC paid on input services shall be allowed to be
used for payment of the KKC on taxable services provided by a service provider.
Q31: How KKC will impact “Make in India” and
“Start up India” campaign of the Government?
Answer: The KKC will have adverse impact on the “Make in
India” and “Start up India” campaign of the Government as the manufacturers
paying KKC on procurement of their input services would not be in a position to
avail Cenvat credit of the same and thus would form part of their cost, leading
to increase in prices to that extent. Further, there would be separate accounts,
codes, records & computation, followed by corresponding peculiar Cenvat provisions,
required to be maintained for KKC, going against the ease of doing business. Thus,
imposition of KKC is likely to hamper “Make in India” and “Start-up India”
campaign of the Modi Government.
Q32: Does a person providing both exempted &
taxable services and reversing Cenvat credit @ 7% of value of exempted service
under Rule 6 of the Credit Rules, needs to reverse the KKC also?
Answer: Yes, since the KKC is included in the Cenvat credit
chain unlike SBC, therefore, Cenvat credit have to be reversed in the similar
manner as was earlier reversed in case of Education Cess and Secondary Higher
Education Cess.
Q33: Can Input Service Distributor (“ISD”)
distribute the Cenvat credit of KKC as per Rule 7 of the Credit Rules?
Answer: Yes, Cenvat credit of KKC may also allowed to be
distributed to Units providing taxable output services as per Rule 7 of the
Credit Rules, but an appropriate amendment is required in this regard in Rule 7
of the Credit Rules.
Q34: In which column, KKC and the Cenvat credit
details of KKC to be shown in the Service Tax return?
Answer: Although the Government has prescribed the separate
accounting code for KKC, but Service Tax return i.e. Form ST-3 is not amended as
yet, it will be clarified to show availment and utilization of KKC separately in
ST-3 in future.
Q35:
Would rebate be available of KKC paid on input services used for provision of
export of services?
Answer:
The Central Government vide Notification No. 29/2016-ST dated May 26, 2016, has
amended Notification No. 39/2012-ST dated June 20, 2012 (Rebate of the duty
paid on excisable inputs or Service tax and cess paid on all input services
used in providing service exported) to insert KKC under the definition of
“service tax and cess”, to enable the provider of services to claim rebate of
KKC paid on all the input services used in providing services exported in terms
of Rule 6A of the Service Tax Rules.
Q36:
Would refund be available of KKC paid on specified services used in Special
Economic Zone (“SEZ”)?
Answer:
Yes, the Notification No. 30/2016-ST dated May 26, 2016 has amended the
Notification No. 12/2013-ST dated July 1, 2013 (Exemption on services received
by units located in a SEZ or Developer of SEZ and used for their authorised
operation), which allows refund of the KKC paid on the specified services to
SEZ Unit or developer, on which ab-initio exemption is admissible but not
claimed and the refund amount would be calculated as under:
Service
tax distributed to SEZ Unit/ Developer as per Rule 7 of the Credit Rules*(0.5+0.5)
14
COMMENTS