Krishi Kalyan Cess - yet another Cess
MAY 30, 2016
By Monarch Bhatt, Advocate
IN Finance Act, 2015 new "Chapter VI" was added for levy and collection of "Swachh Bharat Cess" (SBC). Similarly, in Finance Act, 2016 new "Chapter VI" has been provided for the levy and collection of "KrishiKalyan Cess" (KKC). On 26th May, 2016 new notifications 27/2016-ST to 31/2016-ST, all relating to KKC, have been issued so that existing service tax provisions, exemption notifications, abatement notifications, reverse charge notification shall also apply for the levy and collection of KKC. Notification 28/2016-CE(NT) has also been issued and which seeks to amend CCR, 2004 so as to prescribe that CENVAT credit of KKC paid on input services would be available to service providers and could be utilized for discharge of liability of KKC only.
The detailed analysis on the applicability of KKC is as below -
1. KKC is leviable from 01st June 2016
KKC comes into effect from 01 st June, 2016, as provided under sub section (1) of section 161 of chapter VI of the Finance Act, 2016. Therefore, KKC is leviable from 01 st June, 2016.
2. KKC is payable @ 0.5% on value of service
As per sub section (2) of section 161of the Finance Act, 2016, KKC is leviable @ 0.5% on the value of taxable services. Unlike Education cess and Higher &Secondary Education cess, KKC is not leviable on the component of service tax. KKC is leviable similar to the SBCi.e. on the value of service.
3. Services Exempted from payment of KKC
The notification 28/2016-Service Tax dated 26/05/2016 clarifies that KKC will not be leviable on all the services.
As per the notification, KKC is not leviable on the value of services if:
a) The services are exempted from the whole of the service tax leviable thereon by notification issued under sub section (1) of section 93. OR
b) The services are exempted from the whole of the service tax leviablethereon by special order issued under sub section (2) of section 93. OR
c) Service Tax is not leviable on it as per section 66B, which is charging section for levy of service tax.
Therefore, KKC is not leviable on the following.
- Service provided and covered under mega exemption notification number 25/2012-Service Tax, are not liable for the payment of KKC as services specified under this notification are wholly exempted under sub section (1) of section 93 and therefore it is also not liable for the payment of service tax under section 66B.
- Services provided to the consulates or foreign diplomatic agents or to their family members as per notification number 27/2012-Service Tax, are not liable for the payment of KKC as service tax is not leviable on it under section 66B.
- Service provider availing the benefit of exemption granted under notification number 33/2012-Service Tax and not paying service tax upto the value of Rs. 10 lac as small service providers are also not liable for the payment of KKC.
- The services listed under negative list of services under section 66D are not liable for the payment of KKC as service tax is not leviable on it under section 66B.
4. Value of service for charging KKC
As per the provisions KKC is chargeable on the value of service.
4.1 Value of services for charging KKC shall be as per Valuation Rules
The notification 28/2016-Service Tax dated 26/05/2016 provides an explanation which states that the value of services for charging the KKC shall be as per the valuation rules. Hence, the value determined for the applicability of service tax considering the valuation rules shall be taken into consideration for charging KKC. The value of service with respect to the works contract service, restaurant service and outdoor catering service shall be as follows for charging KKC as valuation rules provides the mechanism to determine the value of service in such cases. The same is to be charged as follows.
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Sr. No.
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Description of Taxable Service
|
Service tax
|
Swachh Bharat Cess
|
KrishiKalyan Cess
|
|
1
|
Works Contract Service
|
|
|
|
| |
a) original works
|
14% on 40% of service value (5.6%)
|
0.5% on 40% of service value
(0.2%)
|
0.5% on 40% of service value (0.2%)
|
| |
b) other than original works such as maintenance or repairs or reconditioning or restoration or servicing of any goods or maintenance or repair or completion and finishing services like glazing or plastering or wall and tilling or installation of electrical fittings of immovable property
|
14% on 70% of service value (9.8%)
|
0.5% on 70% of service value (0.35%)
|
0.5% on 70% of service value (0.35%)
|
|
2
|
In case of supply of food or drink or any other article for human consumption in a Restaurant
|
14% on 40% of total value charged (5.6%)
|
0.5% on 40% of total value charged (0.2%)
|
0.5% on 40% of total value charged
(0.2%)
|
|
3
|
In case of supply of food or drink or any other article for human consumption in an Outdoor Catering
|
14% on 60% of total value charged (8.4%)
|
0.5% on 60% of total value charged (0.3%)
|
0.5% on 60% of total value charged (0.3%)
|
4.2 Value of services & percentage of KKC payable on services covered under abatement notification 26/2012-ST
The notification 26/2012-ST does not provide the abatement to the value of service. In fact, service tax has been charged on reduced rate as per the notification. Therefore, the value of service remains same as it does not provide exemption to the value of service. In such scenario, KKC is to be applied on the entire 100% of the value of service as it does not reduces the value of service. To overcome this situation, notification 28/2016-Service Tax dated 26/05/2016 has already provided the clarification that for the purpose of charging KKC the value of service to be considered as reduced value / abated value by applying the percentage applied for calculating the rate of service tax. Therefore, for the purpose of charging KKC entire 100% is not to be considered as value of service and KKC is to be charged on the abated / reduced value. The services covered under notification number 26/2012-ST are listed below and applicability of service tax,SBC and KKC is analysed in below table.
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Sr. No.
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Description of Taxable Service
|
Service tax
|
Swachh Bharat Cess
|
KrishiKalyan Cess
|
|
1
|
Service of financial leasing including hire purchase
|
1.4%
|
0.05%
|
0.05%
|
|
2
|
Transport of goods by rail other than service of transport of goods in containers by rail by any person other than Indian Railways
|
4.2%
|
0.15%
|
0.15%
|
|
3
|
Transport of goods in containers by rail by any person other than Indian Railways
|
5.6%
|
0.20%
|
0.20%
|
|
4
|
Transport of passengers, with or without accompanied belongings by rail
|
4.2%
|
0.15%
|
0.15%
|
|
5
|
Bundled service where there is supply of food or any other article of human consumption or any drink, provided together with renting of such premises
|
9.8%
|
0.35%
|
0.35%
|
|
6
|
Transport of passengers by air, with or without accompanied of belongings in
a) economy class
b) other than economy class
|
5.6%
8.4%
|
0.20%
0.30%
|
0.20%
0.30%
|
|
7
|
Renting of accommodation service provided by hotels, inns, guest houses, clubs, campsites, etc.
|
8.4%
|
0.30%
|
0.30%
|
|
8
|
Services of goods transport agency in relation to transportation of goods other than used household goods
|
4.2%
|
0.15%
|
0.15%
|
|
9
|
Services of goods transport agency in relation to transportation of used household goods.
|
5.6%
|
0.20%
|
0.20%
|
|
10
|
Services provided by a foreman of chit fund in relation to chit
|
9.8%
|
0.35%
|
0.35%
|
|
11
|
Renting of motor cab
|
5.6%
|
0.20%
|
0.20%
|
|
12
|
Transport of Passengers, with or without accompanied belongings, by
a) a contract carriage other than motor cab
b) a radio taxi
c) a stage carriage
|
5.6%
|
0.20%
|
0.20%
|
|
13
|
Transport of goods in a vessel
|
4.2%
|
0.15%
|
0.15%
|
14
|
Services by a tour operator in relation to,-
(i) a tour, only for the purpose of arranging or booking accommodation for any person
|
1.4%
|
0.05%
|
0.05%
|
| |
(ii) tours other than (i) above |
4.2% |
0.15% |
0.15% |
| 15 |
Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority |
4.2% |
0.15% |
0.15% |
4.3 Value of services & KKC payable where composite rates provided under Service Tax Rules
The notification 31/2016-Service Tax issued on 26/05/2016 amends the service tax rules by adding sub rule 7E, which provides for the manner of calculation for payment of KKC where service tax is payable on composite rates under rule 6. Sub rule (7), (7A), (7B) and (7C) of Rule 6 provides for the payment of service tax at composite rates for air travel agency services, life insurance service, foreign currency exchange service and lottery service respectively. As per the notification,KKC is payable by multiplying the rate of KKC (0.5%) with the service tax payable (as determined under Rule 6) and dividing by the rate of service tax (14%).
For example: Hotel is giving the currency exchange services to their guest for an INR amounting of 50,000/- on which as per sub rule (7B) service tax payable comes to 70. Therefore, liability of KKC comes to 2.5 (0.5 x 70 / 14).
Note: It is to be noted that once assessee opted for the payment of KKC under sub rule 7E, the option shall not be withdrawn during the financial year.
5. Payment of KKC by receiver of service
As per service tax provisions in many of the cases, receiver of service is made liable for the payment of service tax by virtue of section 68 (2) wherein, notification 30/2012-ST has also been providedstating the nature of services on which receiver is liable for the payment of service tax. Notification 27/2016-Service Tax has been issued on 26/05/2016 wherein, it provides that KKC shall also be payable by the receiver of service as notification 30/2012-ST applies to the service tax it shall also apply to the KKC. Therefore, even receiver of service is made liable for the payment of KKC.
6. Applicability of Point of Taxation Rules, 2011
The KKC is new levy and for collection of any new levy, there was no provision in the Point of Taxation Rules (POT) till 29th day of February, 2016. To overcome this situation the notification number 10/2016-Service Tax dated 01 st March, 2016 has been introduced to amend rule 5 of POT. The notification provides for addition of two explanations after clause (b) of rule 5 of POT. The amended rule 5 of POT reads as under.
"RULE 5. Payment of tax in case of new services. -
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 service 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.
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".
As per explanation 1 to amended rule 5, this rule shall be applicable in case of new levy also. Therefore, KKC is to be collected as per rule 5. Further as per explanation 2, KKC will be payable in all the cases other than those mentioned in clause (a) and (b).
It is to be noted that amendment has also been made under section 67A wherein, existing provisions of section 67A read as sub-section (1) and new sub-section (2) has been added. The credit of KKC is eligible as CENVAT credit therefore, without going into the validation of explanation added to rule 5, to avoid the dispute it is advisable to discharge the liability of KKC. You may also refer to my earlier article " Explanation 2 to Rule 5 of POT is ultra vires ".
It is also to be noted that KKC is a new levy and cannot be considered as change in effective rate of taxes. Therefore POT cannot be determined under rule 4 of POT. The POT for provider of service shall be determined under rule 5 and for the receiver of service is to be determined under rule 7.
The applicability of KKC under various situations based on rule 5 and rule 7 of POT can be analysed as under.
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Sr. No.
|
Description of service
|
Applicability of KKC
|
|
FOR PROVIDER OF SERVICE
|
|
1
|
Advances received prior to 01/06/2016
Invoice issued prior to 01/06/2016
|
KKC is not payable.
|
|
2
|
Advances received prior to 01/06/2016
Invoice issued within 14 days i.e. by 14/06/16
|
KKC is not payable.
|
|
3
|
Advances received prior to 01/06/2016
invoice NOT issued within 14 days i.e. by 14/06/16
|
KKC is not payable as the POT is the receipt of advances. However, since credit of KKC is eligible assesse may pay the liability by raising supplementary invoice for recovery of KKC to avoid disputes with department.
|
|
4
|
Invoice issued prior to 01/06/2016
Amount received prior to 01/06/2016
|
KKC is not payable.
|
|
5
|
Invoice issued prior to 01/06/2016
Amount received after 01/06/2016
|
KKC is not payable as the POT is the issue of invoice. However, since credit of KKC is eligible assesse may pay the liability by raising supplementary invoice for recovery of KKC to avoid the disputes with department.
|
|
FOR RECEIVER OF SERVICE
Where service tax is payable by receiver of service under reverse charge mechanism such as Manpower Supply Service, Legal Service, security service, works contract service, import of services, etc.
|
|
6
|
Invoice is dated prior to 01/06/2016
payment made on or before 31/05/2016 and within 3 months from the invoice date
|
KKC is not payable.
|
|
7
|
Invoice is dated prior to 29/02/2016
payment not made on or before 31/05/2016
|
KKC is not payable as POT will be immediately next day after three months from the invoice date which will be prior to the introduction of KKC.
|
|
8
|
Invoice is dated prior to 01/06/2016
payment not made on or before 31/05/2016 but paid within 3 months from the invoice date after 01/06/2016
|
KKC is payable.
|
|
9
|
Invoice dated prior to 01/06/2016 and payment not made upto 01/06/2016 but debited in the books of accounts prior to 01/06/2016 where service tax is payable as receiver of service for transaction with associated enterprises.
|
KKC is not chargeable as POT is debit in the books of accounts or payment whichever is earlier and debit in the books of accounts is prior to the levy of KKC.
|
7. CENVAT credit of KKC
Notification 28/2016-Central Excise (NT) has been issued on 26/05/2016 wherein, amendment has been made in the CENVAT Credit Rules, 2004. As per the amended provisions, provider of output service is eligible to avail the CENVAT credit of KKC for discharging the output service liability on KKC.
Note:
To discharge the liability of KKC, assesse cannot utilise the service tax or excise duty or any other balance credit available with them.
The assesse can use the available KKC, only against discharging the liability of KKC on the output service. Available balance of KKC cannot be used to discharge any other liability of service tax or excise duty, etc.
Manufacturers are not allowed to avail and utilise the credit of KKC since they are not liable to discharge the liability of KKC at all. Therefore, manufacturers may get the input service invoices with KKC but cannot utilise it against the excise duty liability.
8. Refund of KKC
8.1 Refund of KKC in case of export of service
Rule 6A of Service Tax Rules, 1994 provides the conditions when service to be treated as export of service. Further, it provides that refund shall be provided where the services are exported as per the conditions and limitations provided under the notification issued by the government. Therefore, government has issued the notification 39/2012-ST for the grant of refund in case services are exported as per Rule 6A of the service Tax Rule, 1994.
Notification number 29/2016-Service Tax dated 26/05/2016 has been issued to amend the notification number 39/2012-ST and it provides that refund of KKC shall be allowed, if services are exported under rule 6A of the Service Tax Rules, 1994.
8.2 Refund of KKC where the services are provided to SEZ Unit or the developer
The cases where specified services are received by the SEZ unit and the developer has used such services exclusively for the authorised operations, in such cases service tax is not leviable on it. However, if such option is not exercised, SEZ unit or the developer are entitle for the refund of such service tax paid by them. The notification 30/2016-Service Tax dated 26/05/2016 has been issued to grant the refund of KKC as well where the exemption is admissible but not claimed.
9. Accounting codes for payment of KKC
The KKC is to be discharged under specific accounting code. The circular No. 194/04/2016-ST dated 26/05/2016 has been issued which provides the accounting codes for KKC. The same are as follows.
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Description
|
Accounting code
|
|
Payment of KKC
|
00441509
|
|
Interest on KKC
|
00441510
|
|
Penalty
|
00441512
|
|
Refund
|
00441511
|
10. Accounting of KKC&issue of Invoice
It is advisable to create a separate liability code or ledger for booking and accounting KKC liability. Similarly, separate CENVAT credit code or ledger to be created for availing and utilising the credit of KKC, as KKC cannot be used to discharge the liability of other taxes and cess and vice-a-versa.
The levy of KKC is to be shown separately on the invoice. It should not be merged with the service tax mentioned on the invoice.
11. Conclusion
With this additional introduction of cess for the kalyan of Kisaan, let us hope for the hariyalikranti in India, which will give some relief and hope to Indian farmers.
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