Companies may merge Krishi Kalyan Cess credit with other credits
, ET Bureau|
Oct 19, 2017, 12.34 AM IST
MUMBAI: Krishi Kalyan Cess (KKC) — a 0.5% levy under the earlier tax regime — has become one of the biggest worry for most companies under the ambit of the goods and services tax (GST).
Most are grappling with a question of whether they should add the KKC credit lying on their books to sales tax credit while filing the GST returns or not.
Before the GST regime, companies could claim the refund of KKC against service tax paid.
Most companies are looking to merge KKC credit lying in their books with other credits while they fill Trans 1 form, said two tax consultants and two finance heads of manufacturing companies ET spoke to. The deadline to file the Trans 1 form — an online mechanism to avail the credit for the taxes filed before the roll out of GST— is October 31. However, most companies are looking to complete it by October 20.
Tax experts point out that most companies are looking to merge KKC with other credits, and this may not go down well with the taxman. “The tax department seems to have taken a view that KKC credit is not available under GST but most companies are considering this as eligible credits and claiming it,” said Sachin Menon, head, indirect tax, KPMG India. For companies there are only two other options: either they write off KKC credit or they don’t claim it now but carry it forward on their books and wait for government’s clarification.
Tax experts point out that the stance taken by some companies could also lead to litigation and the government could avoid it by clarifying the issue.
“Businesses are expecting the government to provide a benevolent disposition on the issue of carry forward of KKC credit as a decision to write off the same would adversely affect the profitability in an otherwise stressful quarter. The differentiation in the treatment of this issue by various businesses could also result in avoidable litigation in future, hence an early resolution of this issue is essential,” said MS Mani, partner, Deloitte India.
KKC was first introduced in February 2016 Budget and came into effect from June 1 the same year. The amount collected through the cess was to be solely used for the welfare of agriculture sector. Unlike all other cess, cenvat credit of KKC was available under the Cenvat Credit Rules, 2004. Effectively, it meant companies could claim the refund of KKC in service tax. While there are no accurate figures on the total KKC amount, government estimates suggests that it could be in the region of Rs 5,000 crore.
However, when GST was introduced on July 1 this year, companies had millions lying in their books as KKC credit. Many companies under the earlier tax regime would keep aside an amount in cases where they feared conflict with the tax department. However, that may not be possible under GST, say tax experts, sparking additional worries.
“While some companies under earlier regime would keep cash equivalent to the disputed credit on their books unutilised as a precaution to avoid interest/penalty in case of an adverse decision, that’s not possible with GST. This is because once the credits are electronically taken, the GSTN system does not allow partial utilisation of credit taken, unless the output GST liability is less than input credit,” said Sachin Menon, head, indirect tax, KPMG India.
This comes at a time when the tax companidepartment is already questioning a high amount claimed by companies as credits.
ET had on October 14 reported that the tax department has sought explanations from banks and financial institutions, including multinationals, on transitional credit claimed in July under the GST.
Taxmen suspect some companies are misusing the provision and have filed fake returns to claim high transitional credits. Of the total Rs 95,000-crore GST collected in July, Rs 65,000 crore was claimed in refunds or transitional credit.
The move comes about two weeks after tax officers questioned manufacturing companies on transitional credit claimed by them. If most companies go ahead and merge KKC with other tax credits it may be questioned by the taxman in coming months, Menon said.
Most are grappling with a question of whether they should add the KKC credit lying on their books to sales tax credit while filing the GST returns or not.
Before the GST regime, companies could claim the refund of KKC against service tax paid.
Most companies are looking to merge KKC credit lying in their books with other credits while they fill Trans 1 form, said two tax consultants and two finance heads of manufacturing companies ET spoke to. The deadline to file the Trans 1 form — an online mechanism to avail the credit for the taxes filed before the roll out of GST— is October 31. However, most companies are looking to complete it by October 20.
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Tax experts point out that most companies are looking to merge KKC with other credits, and this may not go down well with the taxman. “The tax department seems to have taken a view that KKC credit is not available under GST but most companies are considering this as eligible credits and claiming it,” said Sachin Menon, head, indirect tax, KPMG India. For companies there are only two other options: either they write off KKC credit or they don’t claim it now but carry it forward on their books and wait for government’s clarification.
Tax experts point out that the stance taken by some companies could also lead to litigation and the government could avoid it by clarifying the issue.
“Businesses are expecting the government to provide a benevolent disposition on the issue of carry forward of KKC credit as a decision to write off the same would adversely affect the profitability in an otherwise stressful quarter. The differentiation in the treatment of this issue by various businesses could also result in avoidable litigation in future, hence an early resolution of this issue is essential,” said MS Mani, partner, Deloitte India.
KKC was first introduced in February 2016 Budget and came into effect from June 1 the same year. The amount collected through the cess was to be solely used for the welfare of agriculture sector. Unlike all other cess, cenvat credit of KKC was available under the Cenvat Credit Rules, 2004. Effectively, it meant companies could claim the refund of KKC in service tax. While there are no accurate figures on the total KKC amount, government estimates suggests that it could be in the region of Rs 5,000 crore.
However, when GST was introduced on July 1 this year, companies had millions lying in their books as KKC credit. Many companies under the earlier tax regime would keep aside an amount in cases where they feared conflict with the tax department. However, that may not be possible under GST, say tax experts, sparking additional worries.
“While some companies under earlier regime would keep cash equivalent to the disputed credit on their books unutilised as a precaution to avoid interest/penalty in case of an adverse decision, that’s not possible with GST. This is because once the credits are electronically taken, the GSTN system does not allow partial utilisation of credit taken, unless the output GST liability is less than input credit,” said Sachin Menon, head, indirect tax, KPMG India.
This comes at a time when the tax companidepartment is already questioning a high amount claimed by companies as credits.
ET had on October 14 reported that the tax department has sought explanations from banks and financial institutions, including multinationals, on transitional credit claimed in July under the GST.
Taxmen suspect some companies are misusing the provision and have filed fake returns to claim high transitional credits. Of the total Rs 95,000-crore GST collected in July, Rs 65,000 crore was claimed in refunds or transitional credit.
The move comes about two weeks after tax officers questioned manufacturing companies on transitional credit claimed by them. If most companies go ahead and merge KKC with other tax credits it may be questioned by the taxman in coming months, Menon said.
