In Budget 2016, FM Jaitely had increased the Service Tax @ 0.5% as Krishi Kalyan Cess. The Krishi Kalyan Cess @ 0.5 percent had been levied on all taxable services, effective from June 1, 2016. This is in addition to any cess or service tax leviable on such taxable services under Chapter V of the Finance Act, 1994, or under any other law for the time being in force. This cess basically means that any taxes paid on the inputs of the final service that you are providing, will be available to you as a Tax Credit.

Yesterday, Central Government has vide Notification No.35/2016-Service Tax, has exempted taxable services from levy of Krishi Kalyan Cess (“KKC”) in cases which satisfies the following two conditions:

–        Where invoices have been raised prior to 01.06.2016; and

–        Where provision of service has been completed prior to 01.6.2016.

Accordingly, the concern of the industry that KKC shall be levied on the opening debtors i.e. remaining unpaid as on 31.03.2016 has been duly answered and no KKC shall be levied on such amounts. Though the notification is effective from 23.6.2016, payments of opening debtors as received between 01.6.2016 and 22.6.2016 can still be a cause of litigation, however, we trust that the government would read the Notification to provide relief to their assesses for such period also.  It is also important to mention that the provision of service should be completed in total and no relief in terms of proportionate completion is mentioned in the notification.

Thus, the levy of KKC can be explained as under:

 

Situation	Services provided	Invoice Issued	Payment received	Whether KKC applicable
Situation A	Before 01.06.2016	Before 01.06.2016	Before 01.06.2016	No (rule 5)
Situation B	Before 01.06.2016	Before 01.06.2016	After 31.05.2016	Exempted (35/2016)
Situation C	Before 01.06.2016	After 31.05.2016	After 31.05.2016	Yes
Situation D	Before 01.06.2016	On or before 14.06.2016	Before 01.06.2016	No (rule 5)
Situation E	Before 01.06.2016	After 14.06.2016	Before 01.06.2016	Yes
Situation F	After 31.05.2016	On or before 14.06.2016	Before 01.06.2016	No (rule 5)
Situation G	After 31.05.2016	After 14.06.2016	Before 01.06.2016	Yes
Situation H	After 31.05.2016	Before 01.06.2016	Before 01.06.2016	No (rule 5)
Situation I	After 31.05.2016	Before 01.06.2016	After 31.05.2016	Yes
Situation J	After 31.05.2016	After 31.05.2016	After 31.05.2016	Yes

Note: Rule 5 refers to Rule 5 of Point of Taxation Rules, 2011.

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