Summary of Krishi Kalyan Cess – Service tax New levy Applicable from 01st June, 2016

The Finance Act, 2016 under Chapter VI has introduced a new cess named ‘Krishi Kalyan Cess’ (KKC) on all taxable services at the rate of 0.5% of the value of such services for the purposes of financing and promoting initiatives to improve agriculture or any other purpose. This cess would come into force from 01.06.2016 and would be levied and collected ‘as service tax’ on the value of all taxable services. This cess would be in addition to any cess or service tax leviable on such taxable services. It is in the nature of a tax and not a fee since there is no quid pro quo between the payer (assesses) and the recipient (Government).

Relevant Rules to understand the implication of new levy:

• Rule 4 of Point of Taxation Rules, 2011 (“POTR, 2011”) – Change in Effective Tax Rate
• Rule 5 of POTR, 2011 – Service Taxed for the first time
• Rule 7 of POTR, 2011 –point of tax for service recipient
• Notification No. 10/2016-ST dated 01^st March, 2016 (insertion of explanation in Rule 5)
• Circular No. 194/04/2016-ST dated 26^th May, 2016 (Accounting Code for payment of KKC)

Analysis above Rules one by one:

• Rule 4 says that in case of a change in effective rate of tax, the new rate would be applicable only when atleast two of the three events occur after the introduction of the new rate:

a) provision of service;

b) invoicing; and

c) receipt of payment.

Where two events occur before the effective date i.e. 01^st June, 2016, then the old rate would be applicable.

• Rule 5 says that where a service is ‘taxed for the first time’ to all cases where payments are received after 01^st, June, 2016 even though the invoice has been issued before 01^st, June, 2016.

• Explanations inserted vide Notification No. 10/2016 in Rule 5says that Rule 5 shall apply mutatis mutandis in case of new levy on services.

• Rule 7 says that point of tax in case of a person who is required to pay service tax as recipients of service shall be the date on which payment is made.

Summary of the above:

• KKC will have to be paid on
• outstanding balance as on 31^st May, 2016 for which payment is to be received after 01^st June, 2016;
• payments received before 01^st June, 2016 but invoice for the same is raised after 14^th June, 2016

Particulars	Invoice is raised before 01.06.2016	Service is Provided before 01.06.2016	Payment is made before 01.06.2016	Applicability of KKC
Scenario 1	Yes	Yes	Yes	No
Scenario 1	No	Yes	Yes	No
Scenario 1	Yes	Yes	No	Yes
Scenario 1	No	Yes	No	Yes

• Under reverse charge KKC will have to be paid along with ST @ 14% and SBC @ 0.5% as and when payment is made to the party.

 Accounting Code for payment of KKC is as under:

Sr. No.	KrishiKalyanCess (Minor Head)	Tax Collection	Other Receipts (Interest)	Deduct Refunds	Penalties
1	0044-00-507	441509	441510	441511	441512

• Other Relevant Point Regarding KKC:

CENVAT Credit Rules Amended : - Notification No. 28/2016-Central Excise (N.T.), Dated: May 26, 2016

·         1. New Rule 3(1a): Cenvat Credit of Krishi Kalyan Cess is allowed.

·       2. New proviso (tenth) to Rule 3(4): Cenvat credit other than KKC credit cannot be used for paying KKC.

·         3. New Clause 3(7)(d): Cenvat credit of KKC Cess can be used only for payment of KKC Cess.

Reverse Charge to apply to KKC: Notification No. 27/2016-Service Tax, Dated: May 26, 2016

·         Notification No. 30/2012 - Service Tax, dated the 20th June, 2012, shall be applicable mutatis mutandis for the purposes of Krishi Kalyan Cess.

Exempted Services exempted from KKC also: Notification No. 28/2016-Service Tax, Dated: May 26, 2016

·         1. Taxable services which are exempted from the whole of service tax by a notification or special order or otherwise not leviable to service tax under section 66B of the Finance Act, 1994, are exempted from KKC.

·         2. KKC payable only on the abated value as per Notification No. 26/2012-Service Tax, dated 20th June, 2012.

Services used in SEZ - Exemption from KKC: Notification No. 30/2016-Service Tax, Dated: May 26, 2016

·         Krishi Kalyan Cess is included in the notification No. 12/2013 dated 1.7.2013 granting exemption to services used in SEZs. A minor error in the Notification is also corrected.