The Union Finance Minister through its budget 2016, announced the inception of the “Krishi Kalyan Cess” with the aim of financing and supporting the agricultural initiatives and farmer’s welfare. The pivotal nature of the cess includes that of reducing the duty levied on irrigation pumps, soil related nutrients and cropping import duties imposed on cold storage related equipments. The proposed Krishi Kalyan Cess came into force with effect from 1-6-2016 under Chapter VI as per Section 161 of the Finance Act, 2016. The set rate for imposition of the Krishi Kalyan Cess is set to be at 0.5%, thus taking the total service tax you pay to 15% (14% Service Tax + 0.5% Swachh Bharat Cess + 0.5% Krishi Kalyan Cess).
Now the question which will come in every customer and taxpayer’s mind would be that of the impact, which this additional cess will exert upon them. With all the loud calls coming about burden which would be caused to your pockets, it is necessary to understand the real burden which you will bear.
Starting off the FAQs, the Krishi Kalyan Cess will be calculated in the similar manner with which Swachh Bharat and service tax is ascertained. Also, the Krishi Kalyan Cess (hereinafter, “KKC”) will be shown categorically seperate in the invoices after the listings of service tax and Swachh Bharat cess. Lets take a sample pro forma of the bills which you shall expect to get post 1-6-2016, lets say at your vicinity’s restaurant—
|(Amount in Rs)|
|Total bill of items consumed||2000|
|Service charge (levied at 10%)||200|
|Service tax @ 14%
(levied on 40% of the total bill amount)
|Swachh Bharat cess (0.5% of 800)||4|
|Krishi Kalyan Cess**||4|
|Value Added Tax
(VAT @ 12.5 of subtotal)
|Total amount payable||3283|
Considering the changes that are expected to arise, there is a definite surety of flames arising in your pockets, though not volcanic. Thus, in the regime of plethora of cess and taxes been levied on the consumers of goods and services, the KKC adds on to the existing list. Lets now consider the concerns arising out of such cess.
The KKC is introduced with a view to support the agricultural funding and give a hand to farmers, which is a positive act by the Government, considering the socialistic theory. As explained afore, the KKC is going to cause you concerns very marginally, which might not attract even your reasonable attention. Since, it is a cess deployed for the supporting a much needed and essential cause, even the taxpayers would not mind outflowing their income towards the contribution of such governmental scheme. And, this is where the primary concern arises. Being a cess, the tax levied will be under direct control of the Central Government under their consolidated funds. Thus, making it to the discretion of the Government to spend the amount collected towards whichever field they want. A similar situation arose with the Swachh Bharat cess, which is imposed at the same rate of 0.5%. The cess lead to the formation of contention the cess in itself is vague in nature i.e. the sum of Rs 1917 crores collected till February 2016 might not necessarily be used for rendering the India clean, and since it is under the direct and sole control of the Central Government, it may use it in the manner it pleases. Though in case of KKC, the Union Finance Minister while introducing the cess promised that the tax collected will be “exclusively” used for the intended purpose of serving the agriculture sector.
Having understood the theory and effects arising out of the newly imposed cess, let us now take a look at what impact will it cause on you. The new cess is a sureshot concern for the consumer being a retrospective imposition. While the service tax is not applicable to non-AC and sleeper class voyages, it would not attract the KKC. The Central Government also specified that the newly introduced cess will not have any effects on the items specified in the negative list under Section 66-D of the Finance Act, 1994. The KKC will further have no application on the activities which do not fall within the definition of service under Section 65-B(44) of the Finance Act, 1994 and the services are exempted by notification and special orders issued under Sections 93(1) and (2) of the said Act respectively.
As a result, with respect to Cenvat credit and other related aspects, a further confusion is surely set to arise when treating KKC separately to the Swachh Bharat cess. As the manufacturing concerns will not be able to exaust the Cenvat, it will lead to an addition in their cost of production which will further reduce the juice of net profit which they would have otherwise received. Moreover, if such manufacturing houses decide to pass on such burden to the consumers, this would result in price elevation of goods and at a macro level leading to an inflationary influence on the economy as a whole. Thus, on the front side, the KKC is visioned as providing benefits to the agricultural economy of the country with expanding the receipts of income received in form of cess to support the need, on the contrary it may also lead to an inflationary situation which at its worst case scenario, may jeopardise the expectations from its initiatives videlicet “Make in India” and “Startup India” campaigns.
* 3rd semester, BBA LLB student, National Law University, Odisha.
** Herein, levied at 0.5% of 800. While for other services the percentage would be 0.5% of the total bill amount.