Simplified approach to service tax - Krishi Kalyan Cess

SIMPLIFIED APPROACH TO SERVICE TAX - KRISHI KALYAN CESS - CHAPTER VI OF FINANCE ACT’ 2016

BUDGET SPEECH

(“152. Input Tax credit of this cess will be available for payment of this I propose to impose a Cess, called the Krishi Kalyan Cess, @ 0.5% on all taxable services, proceeds of which would be exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers. The Cess will come into force with effect from 1st June 2016. cess.”)

PROVISIONS

Date of Applicability

(1) This Chapter shall come into force on the 1st day of June, 2016.

Applicability on Taxable Services

(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 @ 0.5% on the Value of such services for the purposes of financing and promoting initiatives to improve agriculture or for any other purpose relating thereto.

Krishi Kalyan Cess to be in addition to any cess or service tax leviable:

(3) The Krishi Kalyan Cess leviable under sub-section (2) shall be in addition to any cess or service tax leviable on such taxable services under Chapter V of the Finance Act, 1994, or under any other law for the time being in force.

Utilization of Krishi Kalyan Cess

(4) The proceeds of the Krishi Kalyan Cess levied under sub-section (2) shall first be credited to the Consolidated Fund of India and the Central Government may, after due appropriation made by Parliament by law in 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.

Applicability of Provisions of Chapter V of the Finance Act, 1994

(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 tax on such taxable services under the said Chapter or the rules made thereunder, as the case may be.

RELATED POINTS TO NOTE

Following associated points need to be noted:-

1. This Cess (KKC) is applicable only on taxable services.
2. This Cess is applicable w.e.f. 01.06.2016
3. This cess is leviable on the value of services, thus, the effective rate of service tax would be 15% w.e.f. 01.06.2016 (i.e. 14% as Service Tax, 0.5% as SBC and 0.5% as KKC)
4. This cess will not be applicable on non taxable services including the exempted services.
5. This cess is to be disclosed separately on the invoice and paid separately.
6. The cenvat credit of KKC shall be available and shall be utilized only for the payment of KKC. Thus, separate accounts needs to be maintained. (Proper amendment in Cenvat Credit Rules’ 2004 is awaited)
7. Refund of this KKC shall also be allowed as the cenvat credit is there. Further, refund of this cess shall be allowed to Exporter of Service as well as Exporter of Goods as there is no restriction of its availment. Suitable amendment is awaited in CCR’2004 as well as refund notifications.
8. This Cess shall be applicable only on the abated value in case of services covered under abatement scheme.
9. KKC shall also be applicable on the services covered under Reverse Charge Mechanism.
10. Separate accounting codes for its payment shall be released soon.
11. Rule 5 of Point of Taxation Rules’ 2011 need to be referred for its applicability in case of ongoing contracts on 01.06.2016. Thus, if payment is made before 01.06.2016 then this cess is not applicable.

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