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)

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.