Kerala Flood Cess (‘KFC’) – recent developments

The Kerala Government has notified August 1, 2019 as the date of implementation of KFC. Further, the Cess Rules shall also be applicable from the said date which provide as under:

• KFC shall be collectable on the taxable value of intra-state supplies of goods or services made by taxpayers to unregistered dealers or consumers.
• Taxpayers are required to show KFC amount separately on the tax invoices.
• Taxpayers need to file a monthly return (‘return’) in Form No. KFC-A electronically on or before the due date of filing FORM GSTR-3B through the official portal keralataxes.gov.in. At the time of filing of return, taxpayers are also required to pay KFC electronically.
• Taxpayers are required to furnish details of outward supplies of goods or services or both on which KFC is being paid in the return which should match with the details furnished in FORM GSTR-1.

NITYA Comments:

Taxpayers liable to pay KFC, are required to change their IT systems to separately show KFC amount in their tax invoices. Filing of an additional return for KFC will increase the compliance burden of the taxpayers.

The dealers selling goods on MRP (FMCG goods, consumer durable goods, spare parts of automobiles etc.) will need to address the issue of reduction of profit margin and likely to approach manufacturers / distributors for compensation of loss incurred by them. Considering this, the manufacturers can consider the option of declaring dual MRPs for selling goods in Kerala and otherwise.

• Amendment has been made in the Central Goods and Services Tax Rules, 2017 (‘CGST Rules’) to provide that the value of goods on which KFC is applicable shall not include KFC itself. Hence, CGST, SGST and KFC will not be applicable on KFC amount.

NITYA Comments:

Section 15(2)(a) of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) includes any taxes, duties, cesses, fees and charges levied under any law in the value of the supply other than taxes levied under the CGST Act, the respective State GST Act and the Compensation Cess Act. This amendment in CGST Rules to exclude the value of KFC in taxable value is a welcome move and will avoid confusion at taxpayer’s end.

In our earlier update NITYA’s Insight | Issue 32 dated July 4, 2019, we inadvertently mentioned that CGST and SGST shall be payable on transaction value and KFC. CGST and SGST will also apply on value excluding KFC.