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Krishi Kalyan Cess FAQs

Service Tax - By: - Bimal jain - Dated:- 2-6-2016 - Dear Professional Colleague, Krishi Kalyan Cess - FAQs 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 .....

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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 a .....

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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 .....

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ss 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 prom .....

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ed 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 fr .....

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tion to his employment; 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 und .....

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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 .....

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l 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 ₹ 5,000/- as value of a taxable service: Particulras 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/- Tota .....

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16 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 o .....

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e 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: In case of original works: 6% (15%*40%); and Other than original works: 10. .....

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Restaurant services: 6% (15%*40%); and In case of Outdoor catering services: 9% (15%*60%) 18: 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 KK .....

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er: 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 .....

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s, 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: Invoice issued and payment received against such invoice before such service becomes taxable i.e prior to June 1, 2016 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 t .....

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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 jurisp .....

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e of Association of Leasing & Financial Service Companies Vs. Union of India [ 2010 (10) TMI 4 - SUPREME COURT OF INDIA ], 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 .....

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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 provi .....

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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 .....

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plication 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 .....

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e 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 .....

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e. 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: 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; 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; Cenvat credit i .....

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r. 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 C .....

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eversing 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 KK .....

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