Krishi Kalyan Cess (KKC) was proposed in the Budget 2016, proceeds of which were declared to be exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers. There have been lot of hues and cries regarding its taxability, since then.

KKC would be levied, charged, collected and paid to Government independent of Service Tax & Swachh Bharat Cess. This needs to be charged separately on the invoice, accounted for separately in the books of accounts and paid separately under separate accounting code.

Unlike Education Cess which was computed on the amount of Tax, KKC will be calculated in the same way Service Tax is calculated i.e. on the Value of Taxable Services. Accordingly, the KKC will be levied at the 0.50% on value of Service.

For services on which, Service Tax is leviable on certain abated value/prescribed percentage of value of taxable service, KKC will be payable on that abated value or specific percentage of taxable value of service. For example, in case of works contract Service Tax is levied on at the rate of 15% on either 40% or 70% of the value of the service, in case of original works and other than original works, respectively [effective rate: 6% (15%*40%) & 10.5% (15%*70%)].

For the services covered under Reverse Charge Mechanism, KKC will apply in similar manner as in case of Service Tax. Thus, the service receiver will make payment of KKC along with Service Tax and Swachh Bharat Cess.

The service provider exporting his services can claim rebate of KKC paid on all the input services. Also the SEZ Unit or the Developer of SEZ, can claim refund of the KKC, paid on the specified services on which ab-initio exemption is admissible, but not claimed.

As far as the Point of Taxation is concerned there were lot of doubts since, as per Rule 5 of Point of taxation Rules 2011, the new levy is not applicable only if payment is received prior to the date of new levy. It meant that on the invoices issued prior to 01.06.2016, KKC would be applicable if payment is not received upto 31.05.2016. To ease the concerns of the trade Government issued a Notification which clarified that where services are provided as well as invoice is issued prior to 31.05.2016, then KKC is not payable.

A very important concern for assessees’ is regarding admissibility of Cenvat Credit of KKC paid on input services. It must be noted that the Cenvat credit of KKC shall be admissible only to Service provider. The manufacturer of Excisable Goods will not be able to take credit of the same; therefore, for manufacturers it will form part of the cost.

Contributed by Ms. Ruhi Jhota

Ruhi Jhota is an Advocate and practicing in Indirect Taxes. She possesses strong research background which is required to present the complexity of taxation in terms that a layman can understand.

Contact for queries: ruhijhota@gmail.com