Government should reconsider imposition of Krishi Kalyan Cess at 0.5 per cent on all taxable services as it will push production costs further, a report said.
"Cenvat credit of Krishi Kalyan Cess should also be extended to manufacturers of utilisation against excise duty to make manufacturing cost more competitive through amendments in Cenvat Credit Rules, 2004," Assocham said in a note submitted to the Finance Ministry.
Credit of such cess shall be allowed as Cenvat credit for payment of cess by a service provider. However, manufacturing units will be unable to utilise such credit as there is no cess liability, it said.
Assocham has also urged the government to permit refund of service tax, including Krishi Kalyan Cess, paid by entities engaged in agriculture sector in cases where Cenvat credit cannot be availed due to exemption of output product/service.
As per the Tax Research Unit letter dated February 29, 2016, the credit of this cess will be allowed to be used only for payment of proposed cess by service providers.
"In effect, input tax credit of Krishi Kalyan Cess is proposed to be denied to manufacturers who have a liability of central excise but do not provide any taxable output service," it said.
The chamber said denial of input tax credit of Krishi Kalyan Cess to manufacturers is contrary to objectives of 'Make in India,' since this cess will only serve to increase manufacturing cost in the country.
