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Krishi Kalyan Cess Applicability & Open Issues

Service Tax - By: - Bimal jain - Dated:- 30-5-2016 Last Replied Date:- 31-5-2016 - Dear Professional Colleague, Krishi Kalyan Cess - Applicability & Open Issues Pursuing with an objective to finance and promote initiatives to improve agriculture and farmer welfare, the Government announced a new cess namely KrishiKalyan 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 was inserted in the Finance Bill, 2016, containin .....

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KKC @ 0.5% on (a) 5/- Total 1,150/- The Central Government vide Circular No. 194/4/2016-ST dated May 26, 2016 has notified 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 Now, the Central Government has issued following Notifications to clarify on calculation of value of taxable services under Reverse Charge Notification/ Abatement Notification/ Valuati .....

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everse Charge Notification ) prescribes the specified services under full reverse charge wherein 100% Service tax to be paid by the Service Recipient and under partial reverse charge wherein both the Service Provider and Service Recipient has to pay specified percentage of Service tax. Now, the Central Government vide Notification No. 27/2016-ST dated May 26, 2016, has amended/clarified that the Reverse Charge Notification shall be applicable mutatis mutandis for the purposes of KKC also. In oth .....

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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. Therefore, KKC @ 0.5% will be levied on value of all taxable services except the following: Activity excluded from the definition of Service under Section 65B(44) of the Finance Act; Negative List of Services under Section 66D of the Finance Act; Serv .....

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further clarifies 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. For example, in case of GTA services (other than used household goods), presently, abatement of 70% is available and accordingly, Service tax is required to be paid on 30% of value of taxable service after exemption (abatement) o .....

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ce Tax Valuation Rules. Thus, KKC would be levied in the following manner: Computation of tax under Works contract: In terms of Rule 2A of the Service Tax Valuation Rules, Service tax along with SB Cess and KKCneeds to be applied on taxable value. Accordingly, effective rate of Service tax would be as under: In case of original works: 6% (15%*40%); and Other than original works: 10.50% (15%*70%) Computation of tax on Restaurant and Outdoor catering services:In terms of Rule 2C of the Service Tax .....

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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, 1994. Refund of KKC paid on specified services used in Special Economic Zone ( SEZ ) - Notification No. 30/2016-S .....

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istributed to SEZ Unit/ Developer as perRule 7 of the Credit Rules*(0.5+0.5) 14 Amendment in the Service Tax Rules, 1994 for providing alternate rate for KKC- Notification No. 31/2016-ST dated May 26, 2016: As per sub-rule (7), (7A), (7B) or (7C) of rule 6 of the Service Tax Rules, 1994 ( the Service Tax Rules ), there is an alternative rate of Service tax for services, namely, air travel agents, insurance premium, purchase & sale of foreign currency and lottery distributor. The Central Gove .....

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nt opting alternative rate of Service tax is liable to pay Service tax at the rate of 0.7% of the basic fare in case of domestic bookings and at the rate of 1.4% of the basic fare in the case of international bookings. Therefore, KKC would be payable at the following rates: Domestic bookings: 0.7%* 0.5% = 0.025% 14 International bookings: 1.4%* 0.5% = 0.05% 14 Further, in sub-rule (7D), for the figures 0.5 the words effective rate of Swachh Bharat Cess and for the words, figures and brackets 14 .....

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allowed to take Cenvat credit of the KKC on taxable services leviable under Section 161 of the Finance Act, 2016 (28 of 2016); Cenvat credit of any duty specified in Rule 3(1) of the Credit Rules shall not be utilised for payment of KKC; Cenvat credit in respect of KKC shall be utilised only towards payment of KKC. Thus, unlike SBCess, which is not Cenvatable neither in the hands of service providers nor manufacturers, Cenvat credit of KKC paid on input services shall be allowed to be used for .....

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e Modi Government. Treatment of KKC on on-going services/ transactions already rendered prior to June 1, 2016- Still warranting clarification Though, the Central Government has tried to address the concerns of the assessees/industry at large to certain extent well in advance which were dragged till February, 2016 for SB Cess levied last year w.e.f. November 15, 2015. But, at the same time, the Notifications fails to amend/ clarify certain open issues on applicability of KKC on on-going transacti .....

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vy of KKC: It is pertinent here to note thatExplanation 1 & 2 to Rule 5 of Point of Taxation Rules, 2011 ( the POTR ) have been inserted w.e.f March 1, 2016. Explanation 1 provides that point of taxation in case of new levy on services shall be governed by Rule 5 of the POTR and as per Explanation 2, new levy or tax shall be payable on all cases other than specified in Rule 5. Rule 5 of the POTR covers two specific situations where new levy shall NOTbe payable: 1. Invoice issued and payment .....

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ll not be payable and in all others, KKC is to be paid. An illustrative table to above explanations is given as under: 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 Vide this explanation, the .....

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ontained in rules 3, 4, or 8 .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 receive .....

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while 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 shall be DOP: KKC applicable As per amended Rule 7 20.05.2016 25.05.2016 04.06.2016 POT shall be DOI: KKC not applicable 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 0 .....

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n for levy of Service tax on taxable services. We are reproducing herewith Section 66B of the Finance Act for the ease of convenience: 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 twelve 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 .....

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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)], wherein the Hon ble Supreme Court observed that the taxable event under the Service tax law is the rendition of service. In view of the above discussed provisions, the matter is subjected to debate as to whether KKC would be leviable on a service rendered prior to June 1, 2016 when KKC .....

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