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No KKC if invoice is raised and services are rendered on or before May 31, 2016

Bimal Jain , Last updated: 24 June 2016  

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. Hence, after levy of KKC, Service tax rate has increased from 14.5% to 15%, effective from June 1, 2016.

Further, Explanation 1 & 2 to Rule 5 of Point of Taxation Rules, 2011 (“the POTR”), inserted w.e.f March 1, 2016, provides that point of taxation in case of new levy on services shall be governed by Rule 5 of the POTR and new levy or tax shall be payable on all cases other than the following two specific situations specified in Rule 5, where new levy shall NOT be payable:

1.   Invoice issued and payment received against such invoice before such service becomes taxable;

2.   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

Thus, as per the Rule 5 read with explanations, only in two situations (mentioned above), the KKC shall not be payable and in all others, KKC is to be paid.

With the Service tax rate (including SwachhBharat Cess and KKC) of 15% becoming effective from June 1, 2016, a turmoil was being faced by the service providers in respect of on-going transactions for which completion of services have taken place before June 1, 2016 with or without raising of corresponding invoices, but payment for the same is not received till June 1, 2016.

The explanations added to Rule 5 of the POTR raised a fundamental question as to whether a service which has already been provided prior to introduction of new levy could be taxed on receiving payment subsequently, when in terms of Section 66B of the Finance Act, 1994, the chargeable event being rendering of services will always be the prime factor for determining leviability of any tax or cesses.

Now, the Central Government vide Notification No. 35/2016-ST dated June 23, 2016, has exempted taxable services with respect to which the invoice for the service has been issued on or before May 31, 2016, from the whole of KKC leviable thereon, subject to condition that the provision of service has been completed on or before May 31, 2016.

Thus, no KKC shall be payable in cases where invoice is raised and provision of service has been completed on or before May 31, 2016.

Time of supply under GST:

The Central Government has finally brought clarification for levy of KKC when invoice is raised and provision of service has been completed on or before May 31, 2016. But under the Goods and Services Tax (“GST”), taxable event would be ‘supply’ of goods and/ or services as compared to the prevailing concepts of manufacturing of goods/ provision of services/ sale of goods.

As per the Draft Model GST Law, CGST/SGST and IGST on the services shall be payable in the hands of supplier, at the earliest of the following:

S. No.


Time of supply


Invoice issued within  prescribed period

Date of issue of invoice


Date of Receipt of payment

Whichever is earlier


Invoice not issued within prescribed period

Date of completion of the provision of service


Date of Receipt of payment

Whichever is earlier


Not falling under (1) or (2) above

Date on which the recipient shows the receipt of services in his BOA

Hence, it would be interesting to see as to how such scenarios of new levy would be dealt under the GST regime.

To view the complete Notification, please click on the link below:

To view our earlier article on KKC titled “Krishi Kalyan Cess – Applicability & Open Issues”, discussing applicability of KKC in detail with multiple practical example (s), please click on the link below:

Hope the information will assist you in your Professional endeavours. In case of any query/ information, please do not hesitate to write back to us.

Disclaimer: The contents of this document are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the authors nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this document nor for any actions taken in reliance thereon.

Readers are advised to consult the professional for understanding applicability of this newsletter in the respective scenarios. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. No part of this document should be distributed or copied (except for personal, non-commercial use) without our written permission

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Bimal Jain
Category Service Tax   Report

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