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CA Sushil Kr Goyal
Vol : 4 , Issue No. 3June 2016
The Hon’ble President has given
assent to the Finance Bill, 2016
on Saturday, 14th May, 2016.
The Finance Bill, 2016 now
becomes the Finance Act (No.
28) 2016. The changes to be
effective from enactment of the
Act are effective from the said
date. Further, the changes for which the effective date was to be
notified, the Central Government has notified the same to be
effective from 1st June, 2016. The changes applicable with effect
from aforementioned dates are discussed at Page 2.
‘Krishi Kalyan Cess’ (“KKC”) in addition to Swachh Bharat Cess’
(“SBC”) will be levied at 0.5% on the value of all taxable services
from June 1, 2016. The people at large are quite confused about
ascertaining their liability in this transition period. Rule 5 of Point of
Taxation Rules, 2011 deals with this issue which states that where
payment has been received and invoice has been raised prior to
01.06.2016 or within 14 days from the date of levy i.e. upto
15.06.2016, then no tax will be leviable. In all other cases, tax will
be leviable. This will cause hardship on the person liable to pay tax
since this cess would also be leviable on the dues outstanding as
on 31.05.2016 irrespective of the time when the service has been
provided or agreed to be provided. Hence, it needs clarification.
The levy and its effect along with the common doubts in its respect
are sought to be answered by compiling the FAQs on the same at
Page 3 of the issue.
A doubt has been raised with respect to continuance of reverse
charge mechanism for services provided by arbitral tribunal and members of such tribunal, with the withdrawal of exemption of
service provided by a person represented on an arbitral tribunal to
an arbitral tribunal with effect from 01.04.2016. It has been clarified
by the CBEC that service tax liability for services provided by an
arbitral tribunal (including the individual arbitrators of the tribunal)
shall be on the service recipient if it is a business entity located in
the taxable territory with a turnover exceeding rupees ten lakh in
the preceding financial year. Accordingly, there is no change in this
provision with respect to reverse charge mechanism.
Any services provided by Government or a local authority to
business entity with a turnover up to rupees ten lakh in the
preceding financial year was exempted. This exemption has been
amended to bring parity with other exemptions that the said
exemption will not be available in case of services specified in sub
– clause (i), (ii) (iii) of clause (a) of section 66D of the Finance Act,
1994 and renting of immovable property.
Ironically, the party who was the first to propose the GST in 2006
is subsequently now blocking its passage for the political reasons
best known to them. However, the Hon’ble Finance Minister Arun
Jaitley expressed confidence that the much delayed Goods and
Services Tax (GST) Bill will be passed in the monsoon session,
saying “almost every political party” is supporting it. Further, many
political commentators are of the view that the retirement of the
members of the Parliament might just change the position in favour
of the ruling party. The detailed discussion regarding the passage
of bill in monsoon session has been discussed in Page 4 of the
We hope this news letter will add some value and prove to be
beneficial to the readers. We highly solicit suggestions/opinions of
the readers. Please feel free to convey your views at
The Monthly Service Tax Bulletin - Also Covering GST
PAYMENT FORMDUE DATE
Payment for the month of May,
2016 (assessees other than
individuals, proprietorship, HUF,
partnership firm, OPC and LLP) E-Payment
6th June, 2016
Changes effective from 14.05.2016
2Issue No. 51June 2016
1) Time Limit for issuance of show cause notice
The limitation period for recovery of service tax not levied or paid or
short-levied or short paid or erroneously refunded, for cases not
involving fraud, collusion, suppression etc. is enhanced by a period of
one year. It has been made thirty months instead of eighteen months.
2) Interest Rate
Interest rate on delayed payment of tax is prescribed at 15%. However,
in cases where Service Tax is collected but not deposited with the
Central Government,higher rate of interest has been prescribed i.e
For tax payers having turnover of Rs.60 Lacs or less in the preceding
year, the reduction of 3% on applicable interest rate shall continue.
3) Penalty for offences by director etc., of company
Penalty proceedings shall be deemed to be closed in cases where the
main demand and penalty proceedings have been closed under
Section 76 or Section 78.
4) Point of Taxation
The specific rule making powers in respect of Point of Taxation Rules,
2011 shall be provided. Point of Taxation Rules, 2011 shall be amended
5) Monetary limit for punishable offences
The monetary limit for filing complaints for punishable offences is
enhanced to Rs. 2 crore.
6) Power to arrest
The power to arrest in service tax law has been restricted only to
situations where the tax payer has collected the tax above Rs. 2 Crore
but not deposited it with the exchequer.
7) Rebate to exporters
The rebate of Service Tax on taxable services which are used as input
services shall be allowed where any goods and services are exported,
by way of notification as well as rules.
8) Declared Service
Assignment by the government of the right to use the radio-frequency
spectrum and subsequent transfers is stated as service under Section
66E of the Finance Act, 1994. It is being done for making apparent that
it is a service subject to service tax and not sale of intangible goods.
9) Negative List
The specified educational services were covered under the Negative
list. These services shall be omitted from the Negative List but the
service tax exemption on them shall be continued by incorporating
them in the mega exemption notification.
10) Retrospective effect to notification No. 01/2016- ST – Claim of
Refund by the exporter
Notification No. 41/2012- ST, dated the 29thJune, 2012 was amended
vide Notification No.1/2016-ST dated 3rdFebruary, 2016 so as to, inter
alia, allow refund of service tax on services used beyond the factory or
any other place or premises of production or manufacture of the said
goods, for export of the said goods. The said amendment is being given retrospective effect from the date of application of the parent notification,
i.e., from 01.07.2012.
One month period has been allowed to the exporters whose claims of
refund were earlier rejected in absence of amendment carried out vide
11) Service Tax exemption to canal, dam or other irrigation works with
Definition of Governmental authority was amended with effect from
30.01.2014 so as to exempt services provided by way of construction,
erection, maintenance, or alteration etc. of canal, dam or other irrigation
works provided to entities set up by Government but not necessarily by
an Act of Parliament or a State Legislature. However, services provided
prior to 30.01.2014 to such bodies remained taxable. The benefit of
exemption shall be extended to the said services provided during the
period from the 01.07.2012 to 29.01.2014. Refund of Service Tax paid on
the said services during the period from the 01.07.2012 to 29.01.2014
shall also be allowed in accordance with the provisions of law.
12) Restoration of certain exemptions withdrawn last year for
projects, contracts in respect of which were entered into before
withdrawal of the exemption.
a) Exemption from Service Tax on services provided to the
Government, a local authority or a governmental authority by way
of construction, erection, etc. of –
(i) a civil structure or any other original works meant
predominantly for use other than for commerce, industry, or
any other business or profession;
(ii) a structure meant predominantly for use as (i) an educational,
(ii) a clinical, or(iii) an art or cultural establishment;
(iii) a residential complex predominantly meant for self-use or the
use of their employees or other persons specified in the
Explanation 1 to clause 44 of section 65B of the said Act;
was withdrawn with effect from 01.04.2015. The same is
being restored till 31.03.2020 and on which appropriate
stamp duty, where applicable had been paid prior to that date.
b) Exemption from Service Tax on services by way of construction,
erection, etc. of original works pertaining to an airport, port was
withdrawn with effect from 1.4.2015. The same is being restored
till 31.03.2020 for the services provided under a contract which
had been entered into prior to 01.03.2015 and on which
appropriate stamp duty, where applicable, had been paid prior to
that date subject to production of certificate from the Ministry of
Civil Aviation or Ministry of Shipping, as the case may be, that the
contract had been entered into prior to 01.03.2015.
13) Indirect Tax Dispute Resolution Scheme, 2016
Indirect tax Dispute Resolution Scheme, 2016, wherein a scheme in
respect of cases pending before the Commissioner (Appeals), the
assessee, after paying the duty, interest and penalty equivalent to 25%
of duty, can file a declaration, is being introduced. In such cases the
proceedings against the assessee will be closed and he will also get
immunity from prosecution. However, this scheme will not apply in
1) Service of transportation of passengers, with or without
accompanied belongings, by a stage carriage:
This service has been omitted from Negative List. However, such
services by a non-air-conditioned stage carriage shall continue to be
exempted by way of exemption notification. The service of transportation
of passengers by air-conditioned stage carriage will be taxed at the
same level of abatement (60%) as applicable to the transportation of
passengers by a contract carriage, with the same conditions.
Changes effective from 01.06.2016
2) Services by way of transportation of goods by an aircraft or a vessel
from a place outside India up to the customs station of clearance:
This service has also been omitted from the Negative List. However such
services by an aircraft will continue to be exempted by way of exemption
notification. The domestic shipping lines registered in India will be liable
to pay service tax under forward charge while the services availed from
foreign shipping line by a business entity located in India will get taxed
under reverse charge mechanism.
Krishi Kalyan Cess (KKC)
3Issue No. 51June 2016
Q.1 What is KKC?
It is a Cess, which is levied and collected at the rate of 0.5% of the value of
taxable services in accordance with the provisions of Chapter VI of the
Finance Act, 2016.
Q.2 What is the date of implementation of KKC?
Ans. The Central Government has implemented levy of KKC with effect from
Q.3 Whether KKC is levied on all or selected services?
Ans. Government has notified that KKC shall be applicable on all taxable
services except services which are either fully exempt from service tax by
a notification or special order issued under sub-section (1) or as the case
may be under sub-section (2) of section 93 of The Finance Act, 1994 or are
otherwise not leviable to service tax under section 66B of The Finance Act,
Q.4 Why KKC has been imposed?
Ans: KKC has been imposed in order to finance and promote the welfare of
farmers and development of agriculture.
Q.5 How will the KKC be calculated?
Ans: KKC would be calculated on the taxable value of services provided. It can
be said for easy understanding that the value on which Service Tax and
Swachh Bharat Cess is levied, is the value on which KKC is leviable.
Q.6 Whether KKC would be required to be mentioned separately in invoice?
Ans: KKC would be levied, charged, collected and paid to Government
independent of service tax and swachh bharat cess and will be charged
separately on the invoice, accounted for separately in the books of account
and paid separately under separate accounting code.
Q.7 What is the accounting code for deposit of KKC?
Ans. For payment of KKC, a separate accounting code has been notified as
KKC Interest on KKC Penalties on KKC
00441509 00441510 00441512
Q.8 What is the effective rate of service tax, post introduction of KKC?
Ans. Effective rate of service would be 15% post introduction of KKC [14%
Service Tax + 0.5% SBC + 0.5% KKC]
Q.9 Whether KKC is a ‘Cess on tax’ and need to calculate KKC @ 0.5% on
the amount of service tax?
Ans. No, KKC is not a ‘cess on tax’, rather it is a cess on the taxable value itself.
KKC shall be levied @ 0.5% on the value of taxable services.
Q.10 Will KKC be leviable on services covered under reverse charge mechanism?
Ans. Yes, the Government has issued Notification No. 27/2016–ST dated
26.05.2016 to provide that all the provisions for service tax under Notification
No. 30/2012-ST dated 20.06.2012 shall be applicable mutatis mutandis for
the purpose of KKC.
Q.11 How will KKC be calculated for services where abatement is allowed?
Ans. Notification no. 28/2016-ST dated 26.05.2016 provides that KKC shall be
leviable only on that percentage of taxable value which is specified in
Notification no. 26/2012-ST dated 20.06.2012 i.e. KKC will be charged on
the same percentage of value as on which service tax is levied, i.e. value
net of abatement. For example, in case of GTA, where abatement of 70% is
presently available, i.e. taxable value is 30% of the gross billed amount,
effective tax and KKC would be (14% ST + 0.5% SBC + 0.5% KKC) X 30%
= 4.5% (4.20%+0.15%+0.15%).
Q.12 Whether Cenvat Credit of the KKC is available?
Ans. Notification No. 28/2016-CE(NT) dated 26.05.2016 has been brought out
by the Central Government to clarify the position of Cenvat Credit in case of
KKC which is as follows:
- An output service provider is entitled to take Cenvat Credit on input services
in respect of KKC.
- Cenvat credit of any other duty, tax or cess will not be utilized for payment
of output of KKC. -
Cenvat credit in respect of KKC on input services will be utilized only
towards payment of KKC on output services.
Q.13 What would be the point of taxation for KKC?
Ans. Rule 5 of the Point of Taxation Rules, 2011 would be applicable which
states that where payment has been received and invoice has been raised
prior to 01.06.2016 or within 14 days i.e. upto 15.06.2016, there would be
no liability of KKC. In all other cases, KKC would be leviable @ 0.5% of the
value of taxable services.
Q.14 How would the tax be calculated on services covered under Rule 2A,
2B or 2C of Service Tax (Determination of Value) Rules, 2006?
Ans. As per Notification No. 28/2016-ST dated 26.05.2016, the value of taxable
services for the purpose of the KKC shall be the value as determined in
accordance with the Service Tax (Determination of Value) Rules, 2006.
Therefore, tax on services covered by Rule 2A, 2B or 2C of Service Tax
(Determination of Value) Rules, 2006, i.e. ‘Works Contract Service’, ‘Money
Changing Services’ or ‘Restaurant & Outdoor Catering Services’ would be
computed by multiplying the value determined in accordance with these
respective rules with [14% + 0.5%+0.5%].
Therefore, effective rate of Service Tax plus SBC plus KKC in case of
original works and other than original works under the works contract
service would be 6% [(14% + 0.5%+0.5%) * 40%] and 10.5% [(14% +
0.5%+0.5%) * 70%] respectively. Similar, would be the tax treatment for
Money Changing, Restaurant and Outdoor Catering services.
Q.15 Whether KKC would be applicable on services covered by Rule 6 of
Service Tax Rules?
Ans. Rule 6 of Service Tax Rules, 1994 prescribes composite rate of tax for
services of Life Insurance Business, Money Changing & Distributor or
Selling Agent of Lottery. A new Sub-rule (7E) to Rule 6 of Service Tax
Rules, 1994 has been inserted after Rule 6(7D) which was inserted for
SBC, vide Notification No. 31/2016–ST dated 26.05.2016 so as to provide
that the person liable for paying the service tax under other sub-rules to
Rule 6, shall have the option to pay SBC as determined as per the following
ST [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 in respect
of such services and shall not be changed during a financial year under any
Q.16 How liability would be determined in case of reverse charge
mechanism where services have been received prior to 01.06.2016 but
consideration paid after 01.06.2016?
Ans. In respect of reverse charge mechanism, KKC liability is determined in
accordance with Rule 7 of Point of Taxation Rules, 2011 as per which, Point
of Taxation is the date on which consideration is paid to the service provider
subject to the condition that payment is made within 3 months. Otherwise
the date immediately following the said period of 3 months.
However, a new proviso has been inserted. As per this proviso when there
is change in the extent of liability, the point of taxation will be the date of
invoice if service and invoice both has been provided before the date of
Q.17 Will the rebate of KKC on input services be available when such
services have been used for providing output services which have
been exported under Rule 6A of the Service Tax Rules,1994?
Ans. Yes, Rebate of KKC on input services is available. Notification No. 29/2016-
ST dated 26.05.2016 has been brought out by the Government to insert
KKC in the list of service tax and cess in the Notification No. 39/2012-ST
dated 20.06.2012 that provides the conditions, limitations and procedure of
rebate on inputs and input services where these are utilized towards output
services which have been exported under Rule 6A of the Service Tax
Q.18 Will the refund of KKC be allowed for specified services received by units
located in SEZ on which ab-initio exemption was available but not claimed?
Ans. Notification no. 30/2016-ST dated 26.05.2016 has been notified by the
Central Government which allows the SEZ unit or Developer of SEZ to opt
for refund of KKC paid on specified services on which ab-initio exemption
was admissible but was not claimed.
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The Party, who originally thought of GST, seemingly is the main
blockage towards the passage of the bill. The Congress had first
proposed the bill in the year 2006. In spite of being the major
stakeholders for the generation of the most awaited tax reform in
India, they are also the strong barrier for the BJP Government towards
making the bill see the light of day. The present BJP government had
originally planned to pass the GST Bill in Parliament in April, converting
29 states into a single market. But the deadline was missed as the bill
remained stuck in the Rajya Sabha. The bill appears to be fated for
After completion of two years in office, a joyful BJP Government
asserted that the Goods and Service Tax (GST) bill will be taken up in
the monsoon session of the Parliament, which begins with July and
ends with September like every year and assured for its passage even
without the Congress backing. Both the Prime Minister and the
Finance Minister have expressed strong hopes for passage of the bill.
While the Prime Minister was optimistic about the passage of bill this
year, the Finance Minister in addition articulated for passage of the bill
this monsoon session of the Parliament.
There was a sense of similarity between the arguments presented by
both the ministers where they revealed that the formidable numbers of
parties in the parliament are in the favour of the bill. The BJP led
Government further hints banking on the retirement of noticeable
number of members of Rajya Sabha which is destined to happen
sooner rather than later. They hope for the numbers to go in their favour after occupancy of seats by the new members. The hope of the
Government was further bolstered with the support announced by the
Trinamool Congress for the GST Bill, soon after its victory in the
Assembly polls. The hopes of the Government appear to be more than
just flickering, since the numbers are in the favour. Barring the
Congress, most other political parties of the opposition side also have
shown emphatic support to the landmark constitutional amendment
for GST. Such support is yet another ray of hope for change in the fate
of the bill and thus, its passage. Basing opinion on such number game
and support, the BJP led Government is of the opinion that the GST
bill will soon be passeds.
On the other hand, the former Finance Minister, P. Chidambaram
lately accused the government for not being able to persuade them
over the three principal objections raised by them. Clearing the air, he
further remarked that to the best of his knowledge, there has been no
engagement between the two parties across the table. Consequently,
he advised the Government to reach out to them and consider their
Despite the numbers being favourable, the government will have to
ensure that the Congress does not disturb proceedings in Parliament,
as it is an essential requirement for the passage of constitutional
amendment legislation. Once the GST, touted as the biggest reform of
the indirect taxation since Independence, is passed, India will become
one single market.
We sincerely hope to see India become a single
market down the line.
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