Krishi Kalyan Cess- A new levy under the Finance Act, 2016
Overview
Short Note on Krishi Kalyan Cess- New levy under the Finance Act, 2016
As we all know, the Central Government vide Union Budget 2016-17 introduced a new Cess namely ‘Krishi Kalyan Cess’ (“KK Cess”), to be levied @ 0.5 per cent on the value of taxable services w.e.f June 01, 2016. For the said purpose, a separate chapter was inserted (i.e. Chapter VI) in the Finance Bill, 2016, which contains relevant provisions, and applicable with enactment of Finance Act, 2016 (received Presidential Assent on May 14, 2016).
It is worth mentioning here that w.e.f June 01, 2016, after levy of KK Cess, the effective rate of Service Tax will enhance to 15 per cent (earlier it was 14.5 per cent).
New accounting code has also been issued by Central Board of Excise & Customs (“CBEC”) vide Circular No. 194/4/2016-ST dated May 26, 2016.
The Central Government has issued multiple notifications in order to provide clarity on this new levy for instance calculation of value of taxable services under Reverse Charge Mechanism (RCM), abatement, valuation, rebate, refund, availability of CENVAT Credit etc. The gist of various notifications is provided hereunder for ease of reference:
| Notification Number and Date | Related issue | Clarification provided |
| Notification No. 27/2016-ST dated May 26, 2016 | KK Cess under RCM | The Central Government has clarified that the Reverse Charge
Notification shall be applicable mutatis mutandis for the purposes of KK Cess also. |
| Notification No. 28/2016-ST dated May 26, 2016 | Non- applicability of KK Cess | It has been provided that KK Cess 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 (“Finance Act”) or otherwise not leviable to Service tax under Section 66B thereof. |
| Notification No. 28/2016-ST dated May 26, 2016 | Computation of KK Cess where abatement is provided | It has been provided that KK Cess 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.
In other words, KK Cess would be computed on abated value of taxable services. |
| Notification No. 28/2016-ST dated May 26, 2016 | Computation of KK Cess for value of services which is determined as per Valuation Rules | It has been clarified through an explanation that that value of taxable services for the purposes of KK Cess shall be the value as determined in accordance with the Service Tax Valuation Rules. |
| Notification No. 29/2016-ST dated May 26, 2016 | Rebate of KK Cess on input services used for export of services | The Central Government has amended Notification No. 39/2012- ST dated June 20, 2012 to insert clause (e) after clause (d) in Explanation 1 in order to enable the provider of services to claim rebate of KK Cess paid on all the input services used in providing services exported in terms of Rule 6A of the Service Tax Rules, 1994. |
| Notification No. 30/2016-ST dated May 26, 2016 | Refund of KK Cess on specified services used in SEZ | The Central Government has amended Notification No. 12/2013- ST dated July 1, 2013 to enable the SEZ Unit or the Developer for refund of the KK Cess paid on the specified services on which abinitio exemption is admissible but not claimed. |
| Notification No. 31/2016-ST dated May 26, 2016 | Computation of KK Cess where alternative rate of Service Tax is provided under the Service Tax Rules, 1994 | The Central Government has amended the Service Tax Rules to insert sub-rule (7E) after sub-rule (7D), which prescribes that if Service tax is payable at an alternative rate, KK Cess would also be computed in proportion to such alternative rate, in similar manner as it was prescribed at the time of introduction of SB Cess. |
| Notification No. 28/2016-CE(N.T) dated May 28, 2016 | CENVAT Credit | The Central Government has amended Rule 3 of the CENVAT Credit Rules, 2004 to provide that:
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Point of Taxation for New Levy of KK Cess:
As we all know explanation 1 & 2 to Rule 5 of Point of Taxation Rules, 2011 (“PoT Rules”) 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 PoT Rules and as per Explanation 2, new levy or tax shall be payable on all cases other than specified in Rule 5.
It is relevant to mention here that the said Rule 5 of the PoT Rules covers two definite situations where new levy shall not be payable:
- Invoice issued and payment received against such invoice before such service becomes taxable?
- Payment received before the service becomes taxable and invoice has been issued within 14 days of the date when the service is taxed for the first time
Since KK Cess, effective from June 1, 2016, shall be levied on the value of all taxable services. Point of taxation in case of new levy on services shall be governed by Rule 5 of PoT Rules.
As per the Rule 5 read with explanations, KK Cess shall not be payable only in the aforesaid conditions, and in all others situation, it would be payable.
Illustration
| S.No. | Date of Invoice | Date of Payment received | Applicability of KK Cess |
| 1. | May 25, 2016 | May 30, 2016 | No (Refer 1st condition) |
| 2. | June 14, 2016 | May 28, 2016 | No (refer 2nd condition) |
| 3. | June 16, 2016 | May 28, 2016 | Yes (invoice is issued after 14 days) |
| 4. | June 02, 2016 | June 02, 2016 | Yes (both the invoice issued and payment received after June 01, 2016) |
| 5. | May 28, 2016 | June 02, 2016 | Yes (payment received after June 01, 2016) |
Applicability of KK Cess under RCM
PoT in case of reverse charge is governed by Rule 7 of the PoT Rules. The PoT under the said Rule as under:
(i) Payment made within 3 months – Date of payment?
(ii) Payment not made within 3 months – Date immediately following the end of 3 months
It is relevant to mention here that a proviso has been inserted in Rule 7 of the PoT Rules (after second proviso) vide Notification No. 21/2016- ST dated March 30, 2016, to provide that where there is change in the liability or extent of liability of Service tax to be paid under Reverse Charge:
“Service has been provided and the invoice issued before the date of such change, but payment has not been made as on such date, the PoT shall be at the date of issuance of invoice”.
Illustration
| Date of Service | Date of invoice | Date of payment | Applicability of KK Cess |
| May 15, 2016 | May 18, 2016 | June 10, 2016 | No. As per third proviso PoT shall be the date of invoice.
It is relevant to mention here that before the third proviso to Rule 7, POT shall be date of payment and KK Cess would have been levied thereon. |
Peculiarity- Service Provider v. Service receiver
After insertion of third proviso to Rule 7 of the PoT Rules, KK Cess would be leviable in case liability to pay Service Tax is on the service provider, however, under similar circumstances, no KK Cess would be leviable in case such liability is on the service receiver.
Illustration
| Liability to pay Service Tax | Date of Service and invoice | Date of payment | Applicability of KK Cess |
| Service Provider | May 15, 2016
|
June 10, 2016 | Yes, since the same would be governed by Rule 5 |
| Service receiver | May 15, 2016 | June 10, 2016 | No, since the same would be governed by |
