Increase in rate of Service Tax
Budget 2016 has introduced a new cess called Krishi Kalyan Cess (KKC) under Notification Number 28/2016- Service Tax.
This cess is in addition to Swacch Bharat Cess and will be applicable w.e.f 1st June 2016 @ 0.5% on all taxable services, thereby increasing the effective rate of service tax from 14.50% at present to 15.00%.KKC has been levied for the purpose of financing and promoting initiatives to improve agriculture. This cess would be over and above the present 14.50% Service tax rate. Hence, it needs to be charged separately in the invoice, and needs to be accounted separately and should be paid separately under separate accounting head “00441510”.
New effective rate on Services for which reduced rates of service tax are applicable under Valuation Rules or Abatement Notification:
1. As per Valuation Rules
| Taxable Service | Taxable Value | Effective Old Service Tax Rate | Effective New Service Tax Rate |
| Execution of original works | 40% | 5.80% | 6.00% |
| In cases not covered above Including maintenance or repair or reconditioning or restoration or servicing or any goods and other works Including maintenance, repair , completion and finishing services such as glazing, plastering, floor and wall tiling , installation of electrical fittings of an immovable property | 70% | 10.15% | 10.50% |
| Service provided by restaurants | 40% | 5.80% | 6.00% |
| Services provided by outdoor caterer | 60% | 8.70% | 9.00% |
2. Services which are specifically governed by Abatement Notification 26/2012 (Few important categories)
| Category of Service | Abatement % | Taxable % | Effective Old Service Tax Rate | Effective New Service Tax Rate |
| Transport of goods by rail | 70% | 30% | 4.35% | 4.50% |
| Services of goods transport agency in relation to transportation of goods. | 70% | 30% | 4.35% | 4.50% |
| Bundled service by way of supply of food or any other article of human consumption or any drink, in a premises (including hotel, convention center, club, pandal, shamiana or any other place, specially arranged for organizing a function) together with renting of such premises. | 30% | 70% | 10.15% | 10.50% |
| Renting of motor-cab | 60% | 40% | 5.80% | 6.00% |
| Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly, except where entire consideration is received after issuance of completion certificate by the competent authority,- | 70% | 30% | 4.35% | 4.50% |
| a. for a residential unit satisfying both the following conditions, namely:- (i) the carpet area of the unit is less than 2000 square feet; and (ii) the amount charged for the unit is less than rupees one crore; | 75% | 25% | 3.63% | 3.75% |
| b. for other than the (a) above. | 70% | 30% | 4.35% | 4.50% |
Applicable Rates depending upon time when service was provided or consideration was received (POT Rules)
| Provision of Service | Issue of Invoice | Payment received | Effective Rate | POT Rule |
| Before imposition of KKC | After imposition of KKC | After imposition of KKC | 15% | 4 (a) (i) |
| Before imposition of KKC | Before imposition of KKC | After imposition of KKC | 14.50% | 4 (a) (ii) |
| Before imposition of KKC | After imposition of KKC | Before imposition of KKC | 14.50% | 4 (a) (iii) |
| After imposition of KKC | Before imposition of KKC | After imposition of KKC | 15% | 4 (b) (i) |
| After imposition of KKC | Before imposition of KKC | Before imposition of KKC | 14.50% | 4 (b) (ii) |
| After imposition of KKC | After imposition of KKC | Before imposition of KKC | 15% | 4 (b) (iii) |
Effect of KKC on Reverse charge Mechanism
KKC along with Service tax shall be paid on services under Reverse Charge Mechanism as KKC is applicable on all taxable services. In case of reverse charge on services, where services have been received prior to 01.06.2016 but consideration paid post 01.06.2016, point of taxation as per
Rule 7 of Point of Taxation Rules, would be the date on which consideration is paid to the service provider. Hence, KKC would also be required to be paid in such cases. However, when services are received from "associated enterprises", located outside India, the point of taxation shall be the date of debit in the books of account of the person receiving the service or date of making the payment whichever is earlier.
Cenvat Credit of Krishi Kalyan Cess
A provider of output service shall be allowed to avail CENVAT credit of the KKC on taxable services, but the utilization of the same is restricted only towards payment of KKC on output taxable services. Cenvat credit of any other duties /cesses shall not be utilized for payment of KKC.
It is our interpretation that credit of KKC levied on input services (whether under direct payment to service provider / payment made under reverse charge) that are used in the manufacturing of goods will not be available.
Therefore where an assesse is both manufacturer and provider of output services, credit will be available only for those input services which are used for providing output services.
Such assesses will have to make a proper identification of KKC levied on input services which are used for providing output services and KKC levied on input services which are used in manufacturing goods.
This article is contributed by CA Mukund Abhyankar (mbabhyankar@gmail.com).
