Krishi Kalyan Cess – Have you treated it correctly? Applicability and impact on pending invoices/ payments as on June 1, 2016
As you are aware that the effective rate of service tax has increased from 14.5% to 15% with the introduction of KrishiKalyan Cess (“KKC”) of 0.5% with effect from June 1, 2016. In this regard, it is to be noted that if the payment is received on or after June 1, 2016, then the service provider will be liable to pay KKC to the Government as per Point of Taxation Rules, 2011.
The applicability of KKC, being a new levy for the first time on services, is governed as per Rule 5 of Point of Taxation Rule, 2011. The explanation thereto. Rule 5 of Point of Taxation Rules, 2011 is as under:-
“Where a service is taxed for the first time, then –
- a) no tax shall be payable to the extent the invoice has been issued and the payment received against such invoice before such service became taxable;
- b) no tax shall be payable if the payment has been received before the service becomes taxable and invoice has been issued within fourteen days of the date when the service is taxed for the first time.
Explanation 1 – This rule shall apply mutatis mutandis in case of new levy on services.
Explanation 2 – New levy or tax shall be payable on all the cases other than specified above.”
In lights of the above applicable provisions of the law and explanation thereto, any invoice which has been issued prior to 01-June-2016 for which the payment are made on or after 01-June-2016 shall attract the new levy KKC.
To illustrate, if an invoice is issued on May 30, 2016 with a service tax rate of 14.5% and the payment is received on June 2, 2016, then the service provider would be liable to pay KKC to the Government i.e. the effective rate would be 15%. He will be required to either collect it from his customer or pay from his pocket.
We hereby request and advise you to make the payment on or before 31-May-2016 against invoice already issued. Without prejudice to the above, in the event, wherein, any invoice which remains outstanding as on 31-May-2016, it is necessary that an additional invoice be issued for levy of new tax KKC on such outstanding amount.
It may be further noted that the additional levy of KKC on such outstanding amount shall be eligible for CENVAT credit.
It is to be noted that if such payment is not made, then the service provider will be liable to pay interest and penalty on KKC not deposited based on the above provision.
In case of any clarifications you may contact us on email@example.com or on +91-70222-51221.
Article Credit – CA Nitin Nahar & CA Mohit Bajaj