Companies that took Krishi Kalyan Cess credit may face penalties
, ET Bureau|
Feb 25, 2018, 04.50 PM IST
MUMBAI: Krishi Kalyan Cess (KKC) — a 0.5% levy imposed on services under the earlier tax regime — is set to become a major irritant for many companies as they may become liable to pay penalties, with a recent Delhi High Court judgement endorsing restrictions on carrying forwards the credit.
Most companies had merged the KKC credit lying in their books with other credits when goods and services tax was rolled out on July 1 last year. They also carried forward the cess when they uploaded the GST transitional credit forms in October.
Under GST regulations, if a company takes a credit that’s not allowed, it could lead to penalties. This could happen even when the credit had only been carried forward and not actually been utilised by the company to set off tax liabilities. Under the previous regime, there were no penalties if a credit was availed of but not utilised.
Some companies had approached the Delhi High Court, claiming that the new restrictions went against their constitutional right to be treated as equal before law, but the HC dismissed the petition. While court that ruling was not related to KKC — it pertained to education cess — the same principles could apply KCC as well, said tax experts.
“The principles applied by the Delhi HC in the matter relating to education cess could create problems for businesses which have carried forward credit of cesses from the service tax regime to the GST regime. Decisions relating to utilisation or write-offs of credit are invariably linked to accounting, tax payments and disclosures in return, and hence it is necessary to take cognizance of this decision,” said MS Mani, partner, Deloitte India.
ET was first to write on October 19 that most companies were looking to merge KCC credit with other credits when they fill Trans 1 form — an online mechanism to avail of the credit for taxes filed prior to the roll out of GST.
“Following the Delhi High Court judgment, it’s quite clear that companies can’t utilise credit of cess against the taxes/duties under the earlier tax regime. While this may not be a definite ruling, it does pose a complication for those companies that had claimed and merged Krishi Kalyan Cess along with other transitional credit as this could potentially lead to interest and penalties,” said Abhishek A Rastogi, partner at law firm Khaitan & Co.
KKC was introduced in the 2016-17 budget and came into effect from June 1, 2016. The amount collected through the cess was to be solely used in the 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 KKCin service tax.
While there are no accurate figures available on the total proceeds under KKC, government estimates suggest those in the region of Rs 5,000 crore.
Most companies had merged the KKC credit lying in their books with other credits when goods and services tax was rolled out on July 1 last year. They also carried forward the cess when they uploaded the GST transitional credit forms in October.
Under GST regulations, if a company takes a credit that’s not allowed, it could lead to penalties. This could happen even when the credit had only been carried forward and not actually been utilised by the company to set off tax liabilities. Under the previous regime, there were no penalties if a credit was availed of but not utilised.
Some companies had approached the Delhi High Court, claiming that the new restrictions went against their constitutional right to be treated as equal before law, but the HC dismissed the petition. While court that ruling was not related to KKC — it pertained to education cess — the same principles could apply KCC as well, said tax experts.
“The principles applied by the Delhi HC in the matter relating to education cess could create problems for businesses which have carried forward credit of cesses from the service tax regime to the GST regime. Decisions relating to utilisation or write-offs of credit are invariably linked to accounting, tax payments and disclosures in return, and hence it is necessary to take cognizance of this decision,” said MS Mani, partner, Deloitte India.
ET was first to write on October 19 that most companies were looking to merge KCC credit with other credits when they fill Trans 1 form — an online mechanism to avail of the credit for taxes filed prior to the roll out of GST.
“Following the Delhi High Court judgment, it’s quite clear that companies can’t utilise credit of cess against the taxes/duties under the earlier tax regime. While this may not be a definite ruling, it does pose a complication for those companies that had claimed and merged Krishi Kalyan Cess along with other transitional credit as this could potentially lead to interest and penalties,” said Abhishek A Rastogi, partner at law firm Khaitan & Co.
KKC was introduced in the 2016-17 budget and came into effect from June 1, 2016. The amount collected through the cess was to be solely used in the 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 KKCin service tax.
While there are no accurate figures available on the total proceeds under KKC, government estimates suggest those in the region of Rs 5,000 crore.
