Budget 2016-2017Cenvat Credit of Krishi Kalyan Cess (KKC )

Cenvat Credit of Krishi Kalyan Cess (KKC ) 

The Cenvat credit of KKC is available and admissible . This could be understood from the following :

sub-section ( 5) of Section 161 of Finance Act, 2016

(5)The provisions of Chapter V of the Finance Act, 1994 and the rules made there under, including those relating to refunds and exemptions from tax, interest and imposition of penalty shall, as far as may be, apply in relation to the levy and collection of the Krishi Kalyan Cess on taxable services, as they apply in relation to the levy and collection of tax on such taxable services under the said Chapter or the rules made thereunder, as the case may be.” 

Budget Speech 2016

I propose to impose a Cess, called the Krishi Kalyan Cess, @ 0.5% on all taxable services, proceeds of which would be exclusively used for financing initiatives relating to improvement of agriculture and welfare of farmers. The Cess will come into force with effect from 1st June 2016. Input Tax credit of this cess will be available for payment of this cess.”

CBEC-TRU Clarification vide F. No. 334/8/2016-TRU dtd 29.02.2016

3.0 Enabling provision for levy of “Krishi Kalyan Cess”:3.1 Krishi Kalyan Cess is proposed to be levied with effect from 1st June, 2016 on any or all the taxable services at the rate of 0.5% on the value of such taxable services. Credit of Krishi Kalyan Cess paid on input services shall be allowed to be used for payment of the proposed Cess on the service provided by a service provider.                                                                                            (Chapter VI/Clause 158 of the Bill refers)

Finally , it was implemented by way of insertion of sub-rule(1a)  after sub-rule (1) in Rule 3 of Cenvat Credit Rules,2004 for allowing cenvat credit of KKC ,as below :

 (1a) A provider of output service shall be allowed to take CENVAT credit of the Krishi Kalyan Cess on taxable services leviable under section 161 of the Finance Act, 2016 (28 of 2016);”;

(vide Notification  No. 28/2016 – Central Excise (N.T.) New Delhi, the 26th May, 2016 )

Who Can Avail Cenvat Credit of KKC

Unfortunately , only service provider can avail cenvat credit of KKC. Whereas, no provision exists for allowing manufacturers to avail cenvat credit of KKC on input services .

The relevant sub-rule(1a) inserted  after sub-rule (1) in Rule 3 of Cenvat Credit Rules,2004 is reproduced for better apprecaition of this situation 

“(1a) A provider of output service shall be allowed to take CENVAT credit of the Krishi Kalyan Cess on taxable services leviable under section 161 of the Finance Act, 2016 (28 of 2016);”;

Utilisation of KKC

The manner of utilisation of KKC is provided by way of insertion of new   clause (d) in sub-rule (7) of  Rule 3 of CENVAT Credit Rules ,2004 ,

(d) Cenvat credit in respect of Krishi Kalyan Cess on taxable services leviable under section 161 of the Finance Act, 2016 (28 of 2016) shall be utilised only towards payment of Krishi Kalyan Cess on taxable services leviable under section 161 of the Finance Act, 2016 (28 of 2016)”;

(vide Notification  No. 28/2016 – Central Excise (N.T.) New Delhi, the 26th May, 2016 )

Payment of KKC

The payment of KKC has to be made either through cash in PLA or by utilisation of cenvat credit of KKC only . Cenvat credit other than cenvat credit of KKC cannot be utilised to pay KKC .

A restriction has been made by inserting a proviso next to ninth proviso under sub-rule (4) of Rule 3 of CENVAT Credit Rules,2004 ,

Provided also that the Cenvat credit of any duty specified in sub-rule (1) shall not be utilised for payment of Krishi Kalyan Cess leviable under section 161 of the Finance Act, 2016 (28 of 2016);

(vide Notification  No. 28/2016 – Central Excise (N.T.) New Delhi, the 26th May, 2016 )

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