New levy 'KKC' applicable from 01.06.2016 @ 0.5% on value of all taxable service (thus effective rate of ST increases from 14.5% to 15%).
1. POT for determination of KKC liability for Service Receiver (SR) under Reverse Charge Mechanism (RCM):
Rule 7 is applicable for determination of KKC liability for Service Receiver (SR)
It starts with non-abstante clause: Notwithstanding anything contained in Rule 3, 4 or 8
POT except associated enterprises located outside India:-
|
> |
Payment made within 3 months from the date of invoice |
Date of payment |
|
> |
Payment not made within 3 months from the date of invoice |
Date immediately following the end of 3 months |
POT for associated enterprises located outside India :-
Earlier of the following:
- Date of debit in the books of account of SR
- Date of payment
Amendment under POT Rule 7:
Notification No. 21/2016-ST dated 30.03.2016
Proviso inserted in Rule 7
Where there is change in the liability or extent of liability of ST to be paid under RCM, Service has been provided and the invoice issued before the date of such change, but payment has not been made as on such date, the POT shall be ---> the date of issuance of invoice.
Illustration:- Comparison of Old Rule 7 with the Amended Rule 7
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<> |
Date of Completion of Service |
Date of Invoice |
Date of payment |
Applicability of "KKC" |
POT |
|
Old Rule 7 |
15-May-16 |
27-May-16 |
08-Jun-16 |
Yes |
08-Jun-16 |
|
Amended Rule 7 |
15-May-16 |
27-May-16 |
08-Jun-16 |
No |
27-May-16 |
2. POT for determination of KKC liability for Service Provider (SP):
Rule 5 is applicable for determination of KKC liability for Service Provider (SP) due to the amendment in Budget 2016-17:
Amendment under Rule 5:-
POT would determined using Rule 5 in case of new levy or tax shall be payable on all the cases other than specified below.
|
Date of Invoice |
Date of Receipt of Payment / Consideration |
KKC Payable or Not |
Rate of KKC Applicable |
|
Before |
Before |
No |
NA |
|
Within 14 days of Receipt of Payment |
Before |
No |
NA |
|
After 14 days of Receipt of Payment |
Before |
Yes |
0.50% |
|
Before |
After |
Yes |
0.50% |
|
After |
After |
Yes |
0.50% |
Illustration for Service Provider:-
|
<> |
Date of Completion of Service |
Date of Invoice |
Date of payment |
Applicability of "KKC" |
POT |
|
Rule 5 |
15-May-16 |
27-May-16 |
08-Jun-16 |
Yes |
08-Jun-16 |
Comments:
- No further amendment in Rule 5 as compared to Rule 7,Hence liability for SP increases as compared to SR.
- Rule 5 of POT is contrary to Charging Section 66B because as per charging section taxable event is rendition of service.
- Practical ways for SP:-
- Pay KKC from their pocket for the payments received after 01.06.2016
- Raise supplementary invoice and collect from SR.
3. CENVAT Credit on KKC paid on input services received or paid under RCM:
As per Joint Secretary TRU Letter - 334/8/2016 dated 29th Feb 2016, Credit of Krishi Kalyan Cess paid on input services shall be allowed and can be utilized only for payment of such Cess on the output services provided by a "Service Provider".
Comments:-
The Credit of KKC is not available to "Manufacturers", thus it increases the cost to the Manufacturers.
Disclaimer:-
The analysis aims to provide the reader a general understanding of the proposed amendments and should not be construed as a legal opinion.
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