Detail analysis of Krishi Kalyan Cess by CA Rajender Arora

KrishiKalyanCess‟ (“KKC”) to be levied at 0.5% on the value of all taxable services w.e.f. June 1, 2016. Facts about KKC:- Applicable to services taxable under reverse charge also Not leviable on exempted services Credit available only for payment of KKC SEZ units entitled to claim refund of KKC along with service tax Rebate of KKC available in case of export of services Credit of KKC:- A provider of output service shall be allowed to take Cenvat credit of the KKC on taxable services leviable under the Act Cenvat credit shall not be utilised for payment of KKC Cenvat credit in respect of KKC shall be utilized only towards payment of KKC Manufacturers on procurement of input services under “Make in India” and “Start up India” would not be in a position to avail Cenvat credit of the KKC Point of Taxation (“POT”) for determination of KKC taxability:-POT in case of new levy on services shall be governed by Rule 5 of Point of Taxation Rules, 2011. In following two situations only, KKC shall not be payable and in all other cases, it is to be paid: 1. Invoice issued and payment received before such service becomes taxable i.e. before 01-06-2016. 2. Payment received before the service becomes taxable i.e. before 01-06-2016 and invoice has been issued within 14 days from 01-06-2016. This requires clarification from the department as to how a levy can be made applicable when services are provided and only payment is made or received afterwards. There are some judicial precedents also in this regards. a) All India Federation of Tax Practitioners Vs. Union of India {2007-TIOL-149-SC-ST} b) Association of Leasing & Financial Service Companies Vs. Union of India {2010 (20) STR 417 (SC)} In both the above case, the apex court decided that the taxable event under the Service tax law is the rendition of service and not anything else. So, in the considered opinion of the Author, KKC shall not be made applicable on a service provided prior to 01-06-2016 when this levy was not there at all. POT Continued for other events In case of Reverse Charge, POT under Reverse Charge shall be as under: o In case of associated enterprises, where the person providing the service is located outside India, POT shall be earlier of the following:-  Date of debit in the books of account of service receiver;  Date of Payment o In Other Cases:-  Payment made within 3 months – Date of payment;  Payment not made within 3 months – Date immediately following the end of 3 months In case of GTA services, the liability to pay Service tax is on the service recipient (Consignor/ Consignee liable to pay freight) Case Laws:- Export benefits can’t be denied if sum is received in foreign currency though contract is denominated in rupees [2016] 68 taxmann.com 301 (Mumbai – CESTAT) Commissioner of Service Tax v. Balaji Telefilms Ltd. TWO HIGH COURTS- Same Decision, Issue seems to b settled  Banks selling hypothecated vehicles are treated as dealers under Tamil Nadu VAT Act CST & VAT: Tamil Nadu VAT – Where assessee, a bank, made advance to a customer for purchase of vehicle and held hypothecation of vehicle in its favour and later it repossessed hypothecated vehicle from defaulting customer and sold same through public auction, assessee would come within definition of term ‘dealer’ [2016] 68 taxmann.com 358 (Madras) HDFC Bank Ltd. v. State of Tamil Nadu  Amount received by bank from sale of hypothecated goods is liable to sales tax under Delhi VAT CST & VAT: Delhi VAT – Where assessee, a bank, made advances to customers for purchase of cars and said `cars were hypothecated to bank as security and upon default in repaying loan bank had right to repossess car and brought it to sale, disposal of repossessed cars by bank constituted ‘sale’ [2016] 68 taxmann.com 296 (Delhi) Citi Bank v. Commissioner of Sales Tax CA’s certificate is insufficient to prove that principal of unjust enrichment isn’t attracted to assessee Excise & Customs : Where assessee fails to produce any original records to rule out unjust enrichment, mere CA certificate is insufficient; more so, because, in absence of original records, even CA could not have given a certificate [2016] 68 taxmann.com 382 (Mumbai – CESTAT) Mahindra & Mahindra Ltd. v. Commissioner of Central Excise EOU is entitled to get refund of CST paid on purchases made from another EOU: HC Foreign Trade Policy: Where assessee was registered with Development Commissioner, Madras Export Processing Zone as EOU to manufacture and export of pharmaceutical preparations and during year 2012 it purchased goods from another EOU after payment of central sales tax, in view of paragraph 6.11 of Foreign Trade Policy 2009-14, it was entitled to refund of tax paid on purchases made from another EOU [2016] 69 taxmann.com 18 (Madras) Hospira Health Care India (P.) Ltd. v. Development Commissioner Passive infrastructure companies hiring out telecom towers, etc. to telecom companies cannot take credit of MS Steel Angles/parts, pre-fabricated shelters parts, etc. used in erection of towers [2016] 69 taxmann.com 24 (New Delhi – CESTAT) Tower Vision India (P.) Ltd. v. Commissioner of Central Excise (Adj.) Before initiating garnishee proceedings for recovery of dues of assessee from assessee’s debtor under Section 11(2), revenue must first of all adjudicate what sums are due to Government [2016] 69 taxmann.com 37 (Bombay) Sikkim Ferroys Alloys Ltd. v. Office of the Assistant Commissioner of Central Excise Activity of operating/running plant owned by client and allied activities, prima facie, fall within expression ‘Operational or Administrative assistance in any manner’ and are taxable under ‘Business Support Services’ only from 1-5-2011 [2016] 69 taxmann.com 99 (Mumbai – CESTAT) Commissioner of Service Tax v. Polydrill Engineers (P.) Ltd. Merely supplying manpower to work at cement packing plant, without actually undertaking packing/unpacking or loading/unloading, would not amount to Cargo Handling Services and would not be liable to service tax [2016] 69 taxmann.com 131 (SC) Deputy Commissioner, Central Excise. v. Sushil& Company Cenvat Credit : Internal audit services received from Chartered Accountant for audit of day-today operations; and advertisement services by way of hoardings (even if hoarding boards are located outside factory) are eligible for input service credit [2016] 69 taxmann.com 102 (Ahmedabad – CESTAT) Essar Oil Ltd. v. Commissioner of Central Excise, Customs & Service Tax Refund couldn‟t be denied just because scrutiny notice was served; HC quashed CBDT‟s instruction Tata Teleservices Ltd. v. Central Board of Direct Taxes [2016] 69 taxmann.com 226 (Delhi) Assessee may shift burden of service tax but can’t ask revenue to recover same from service recipient: SC Delhi Transport Corporation v. Commissioner of Service Tax [2016] 69 taxmann.com 175 (SC) Where assessee, a transport association, was finalizing rate-contract between vendors and its member-transporters and had collected fee from vendors and no fee was charged from membertransporters, then, prima facie, said activity may not get covered under Business Auxiliary Service [2016] 69 taxmann.com 179 (New Delhi – CESTAT) Association of State Road Transport Undertaking v. Commissioner of Service Tax Providing advice/consultancy by posting key senior personnel to assist clients to conduct their hotel business with their own infrastructure and manpower amounts to ‘Management or Business Consultant’s Services’ and not Business Auxiliary Services [2016] 69 taxmann.com 201 (Mumbai – CESTAT) Piem Hotels Ltd. v. Commissioner of Central Excise Where assessee had not collected service tax separately, tax liability is to be worked out from consideration received holding same as cum-tax [2016] 69 taxmann.com 200 (Mumbai – CESTAT) LalitDongre v. Commissioner of Central Excise & Customs Input service credit can’t be allowed without examining nexus of input service with output service [2016] 69 taxmann.com 214 (Karnataka) Principal Commissioner of Service Tax v. Shell Technology India (P.) Ltd. If Modvat credit could not be used by assessee due to restriction imposed by department, balance lying in Modvat account must be allowed as credit in Cenvat account [2016] 69 taxmann.com 216 (Patna) Commissioner of Central Excise v. Bata India Ltd. Deputation of employees and sharing of cost on actual basis with group Cos. doesn’t amount to rendering of service [2016] 69 taxmann.com 198 (Mumbai – CESTAT) Franco Indian Pharmaceutical (P.) Ltd. v. Commissioner of Service-Tax Services received from foreign intermediary in connection with raising of External Commercial Borrowings (ECB) is liable to service tax under ‘Banking and Other Financial Services’ under reverse charge in hands of Indian service recipient [2016] 69 taxmann.com 266 (Mumbai – CESTAT) Gitanjali Gems Ltd. v. Commissioner of Service Tax An open ground or a garden or an existing building prepared or arranged for an official, social or business function is ‘Pandal or Shamiana’ and light decoration therein is taxable under ‘Pandal or Shamiana Contractor Services’ [2016] 69 taxmann.com 288 (New Delhi – CESTAT) Hargovind Electric Decorators v. Commissioner of Central Excise HC disallows input tax credit to Karnataka Dealer for its default in maintaining books and producing tax invoices [2016] 69 taxmann.com 299 (Karnataka) Nav Bharat Steel v. State of Karnataka