CENVAT credit eligibility on KKC as a manufacturer (deemed Service provider i.e. Reverse change Machanism

[Yatin Bhopi]

Dear experts,

We are manufacturer and also liable to pay service tax under reverse charge mechanism on GTA, Works contract, Legal services etc. and also providing one service (receiving Intending commission from outside India) i.e. Business Auxiliary service. Now after 1^st June 2016 Krishi Kalyan Cess will be applicable to all services.

Below is the Para 3.1 of F. No. 334/8/2016-TRU dated 29.02.2016

Enabling provision for levy of “Krishi Kalyan Cess”: 3.1 Krishi Kalyan Cess (KKC) 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.

In above clarification letter TRU is clarify that CENVAT credit will be available to the service provider.

My query is:

Since we are paying service tax on reverse charge basis (deemed Service provider) and also in Business auxiliary service (as a service provider) can CENVAT credit is available to us? (received on various input services used in relation to manufacturing activity)

[Rajagopalan Ranganathan]

Sir,

You can avail the credit of Krishi Kalyan Cess paid by you under RCM and can utilise the same for payment of Krishi Kalyan Cess only on output service provided by you.

[KASTURI SETHI]

I concur with the views of Sh. Rajagopalan Ranganathan, Sir

[Mahir S]

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.

[Yatin Bhopi]

Thanks a lot Sir,

Can we used this credit also to pay Krishi Kalyan cess liable to pay under reverse change?

[Suryanarayana Sathineni]

Dear Friend,

The answer to your first point is that whether you can avail the credit ST paid under reverse charge Mechanism is YES except, for the services that are under exclusion clause in the definition and the same can be used for payment of your service Tax liability.

Second question related to KKC, as already stated , you can avail the cenvat credit and this particular amount taken as credit to be utilized only for payment of KKC and not for any other purpose.

Hope your query is clarified.

Best Regards

Suryanarayana

[Rajagopalan Ranganathan]

Sir,

In my view cenvat credit cannot be used for payment of service tax under reverse charge mechanism. The same is ture in respect of Krishi kalyan CEss also.

[KASTURI SETHI]

Agreed with Sh. Rajagopalan Ranganathan, Sir. As per Rule 3(4) Explanation inserted vide Notification No.28/12-CE(NT) dated 20.6.12 (effective from 1.7.2012) ,

“Explanation. - CENVAT credit cannot be used for payment of service tax in respect of services where the person liable to pay tax is the service recipient”.

Hence cenvat credit cannot be used to pay tax by service receiver. Service tax has to be paid by cash only through i.e. GAR-7 challan. Once paid, Cenvat credit can be taken, if otherwise, it is his eligible ‘input service’. It is applicable to new cess also.

[Yatin Bhopi]

Thanks a lot Sir

[Suryanarayana Sathineni]

Dear sirs

Agreed with the point. I have given my view considering that the company also registered as ISD and once ISD distributes the credit the manufacturing unit can use for payment of ST or duty and otherwise there is no purpose in allowing credit of such amount paid under reverse charge.

Further, this restriction is meant for ISD considering that he can only distribute such amount and cannot use for payment of ST

Hope the point is clear

Regards

surya

[Ganeshan Kalyani]

I agree with the experts opinion above, CENVAT Credit on KKC is not eligible to manufacturer, as it has been clarified that such is only eligible to service provider and that to only to set it off against KKC. Thanks.

AI Summary

CENVAT credit restrictions: Krishi Kalyan Cess credit usable only by service providers to offset KKC, not for reverse charge payments. Credit of Krishi Kalyan Cess paid on input services is available to a service provider and may be used only to discharge KKC liability on output services; where tax or cess is payable by the service recipient under reverse charge, CENVAT credit cannot be used to pay that liability and must be paid in cash, although an ISD-distributed credit may be used by recipient units if otherwise eligible.