LEVY OF KRISHI KALYAN CESS

[SARAVANAKUMAR BALASUBRAMANIAN]

ALL ABOUT KRISHI KALYAN CESS

Basic Points

• Hon’ble President of India has given asset to Finance Bill, 2016 on 14^th May, 2016. A new cess called Krishi Kalyan Cess (KKC) will be applicable from 01^st June, 2016 on all taxable services making the effective service tax rate to 15% from the present 14.5%. 
• Objective of this levy is to finance and promote initiatives to improve agriculture or any other purpose relating thereto.
• This cess is payable on the value of taxable services and in addition to the any cess or service tax leviable on the taxable services.
• All the provisions in Chapter V of Finance Act 1994 (Service tax) especially provisions relating to refunds, taxability, exemption from tax, interest and penalty shall apply in relation to levy and collection of KKC as they are applicable to service tax.

Cenvat Credit of KKC paid

• Para 3.1 of TRU Circular F. No. 334/8/2016-TRU dated 29^th Feb, 2016 States that credit of KKC paid on input services shall be allowed to be used for payment of the proposed cess on the services provided by a service provider.
• Hence it is understood that KKC paid is not allowable as cenvat credit on input services to a manufacturer.
• Though as per circular it is allowed as credit for a service provider, as on the date of this article, no amendment has been made in Rule 3 of cenvat credit rules to enable the service providers to avail the same.
• It is highly unfortunate that credit is not allowed to manufacturer (like SBC which is not allowable as credit both to manufacturer and service provider). When the government strives to implement GST, denial of these credits appears contradictory.

Point of Taxation in case of Forward Charge

• Since KKC is a new levy, Rule 5 of POT shall be applicable. Following would be the position by applying the provisions of above Rule.

• If payment for the services provided is received and invoice for the same is raised on or before 31^st May, 2016 then KKC shall not be applicable.
• If payment for the services provided is received on or before 31^st May, 2016 and invoice is raised after 31^st May, 2016 but within 14 days from the date new levy i.e. 01^st June, 2016 then also KKC shall not be applicable.
• In case payment is received only after 31^st May, 2016 then KKC would be applicable irrespective of the date of raising invoice and date of provision of service.

• It is imperative to note here that Rule 5 does not talk about date of completion of service. Hence, it would be practically possible that even though a service is completed before 01^st June, 2016, KKC would be applicable if either payment is received after 01^st June or invoice is raised after 14 days from date of new levy. This is against the provisions of charging section 66B of Finance Act 1994.

Point of taxation in case of Reverse charge mechanism

• Rule 7 of POT Rules have been amended to include a proviso which clarifies that in case there is a change in liability of service receiver may be as a result of change in rate of tax or new levy, and service is provided and invoice is issued before such change but payment has not been made as on that date then POT for the service recipient shall be the date of invoice. This amendment acts as beneficial provision for the service recipient.

• X ltd has received a bill for ₹ 1,00,000 from security agent (individual) on 15-05-2016 for the services provided from 01-04-2016 to 30-04-2016. Payment of this bill is made by X ltd to the security agent only on 15-06-2016.

• Now by applying the provisions of Rule 7 of POT Rules, date of payment is the point of taxation for reverse charge mechanism. Hence, one may conclude that 15-06-2016 is the POT and hence ST is payable at 15%. However, a proviso has been appended by the Finance Act, 2016 under Rule 7 which says if following two conditions are satisfied then date of invoice is the point of taxation.

• Service has been provided before date of change in liability. In the above case, it is 31-05-2016. So service is provided before change in liability.
• Invoice for above service is raised before date of change in liability. In our case date of invoice is 15-05-2016.

• Since two conditions are satisfied point of taxation shall be 15-05-2016 and rate of service tax payable under reverse charge mechanism is 14.5% and not 15%. However, due date for remittance of service tax liability is 06-06-2016 in case of persons other than individual, partnership firm and HUF.

Discussions to this article

[MARIAPPAN GOVINDARAJAN]

Welcome Shri Saravanakumar and J. Balasubramanian, Chartered Accountants to this forum.

[viswanathan RAVI]

Whether the decision of the Hon’ble Supreme Court in the case of All India Federation of Tax Practitioners Vs. Union of India [ 2007 (8) TMI 1 - Supreme Court ]wherein 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) - 2010 (10) TMI 4 - SUPREME COURT OF INDIA ], wherein the Hon’ble Supreme Court observed that the taxable event under the Service tax law is the rendition of service;

therefore the date of service alone determines the Rate

[piyush agarwal]

Sir in my view:

It can be seen that Rule 7 overrides rule 3,4,8 and does not overrule Rule 5 of POT and therefore, Rule 5 is an independent rule and prevails over Rule 7. Further, the 3^rd proviso so inserted in rule 7 by Notification No.21/2016 S.T dated 30.03.2015 deals with the situation when there is a change in the liability or extent of liability of a person required to pay tax as recipient of service. Such change could arise when there will be change in the rates of abatement, exemption etc., under reverse charge mechanism i.e. it will be a case when liability of a service recipient on existing taxable services which arises due to existing tax/cess got changed. Therefore, the benefit of 3^rd proviso of rule 7 shall not be available to the service recipient in case of new levy(KKC).

Further 2nd Explanations inserted by Notification No 10/2016-ST dated 1^st March, 2016 in POT Rules 5- states" New levy or tax shall be payable on all cases other than specified above"

Further As per Notification No 27/2016-ST dated 26th May, 2016 section and language used in notification is section 68(2) is like that the tax shall be paid as like as a service provider.

Hence in my view POT for service receiver shall be only DATE OF PAYMENT in call cases.