REFUND OF CENVAT CREDIT TO SERVICE PROVIDERS

Refund under Rule 5B of Cenvat Rules

Rule 5B inserted in Cenvat Credit Rules, 2004 w.e.f. 01.07.2012 vide Notification No. 28/2012-CE(NT) dated 20.06.2012 provides as follows:

'Rule 5B - Refund of CENVAT credit to service providers providing services taxed on reverse charge basis. - A provider of service providing services notified under sub-section (2) of section 68 of the Finance Act and being unable to utilise the CENVAT credit availed on inputs and input services for payment of service tax on such output services, shall be allowed refund of such unutilized CENVAT credit subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette.'

Under Rule 5B, inserted w.e.f. 1.7.2012 vide Notification No. 28/2012-CE(NT) dated 20.6.2012, refund of Cenvat Credit will be allowed to service providers providing services on reverse charge basis. The service providers providing services specified in section 68(2) and being unable to utilize Cenvat credit availed on inputs and input services for payment of Service Tax on such output services shall be allowed refund of unutilized cenvat credit. For claiming such refund of credit, CBEC shall notify safeguards, conditions, procedures and limitations.

Government has issued Notification No. 12/2014-CE(NT) dated 03.03.2014 for implementation of Rule 5B which provides for safeguards, conditions and limitations for claiming refund under rule 5B of Cenvat Credit Rules, 2004, alongwith application form / declaration to be submitted to the jurisdictional office of Central Excise.

CBEC has notified the procedure for filling refund application by service provider under Rule 5B of the Cenvat Credit Rules 2004 for claiming refund of unutilized Cenvat credit availed on inputs and input services received on and after July 1, 2012 in respect of only the following specified  services under partial reverse charge mechanism:

1. renting of a motor vehicle designed to carry passengers on non-abated value, to any person who is not engaged in a similar business;
2. supply of manpower for any purpose or security services; or
3. service portion in the execution of works contract

Refund shall be eligible to the following output service providers –

1. Renting of motor vehicles designed to carry passengers to any person who is not engaged in similar business (for non-abated cases)
2. Supply of manpower for any purpose including security services
3. Service component in the execution of works contract

In full (100 percent ) reverse charge cases, the concerned service is not considered to be an output service for the service provider and as such, is not eligible for Cenvat credit. In such cases, since credit itself is not allowable, there is no question of Cenvat refund. Therefore, Rule 5B of Cenvat Credit Rules is not applicable to such cases.

Refund of unutilized Cenvat credit taken on inputs and / or input services shall be claimed on a half yearly basis. Refund claims are required to be submitted in prescribed ‘Form-A’ to the jurisdictional Assistant / Deputy Commissioner of Central Excise, as the case may be, before the expiry of one year from the due date of filing of return for the half year. However, since the notification has been issued late, it has been provided that last date of filing of refund claim in ‘Form-A’ for the period commencing form 1^st July 2012 to 30^th September, 2012 shall be 30^th June, 2014. No refund shall be admissible for the Cenvat credit taken on inputs or input services received prior to 1^st July 2012.

Assessees should note that following conditions must be complied with –

1. Only one refund claim should be submitted and assessee shall not submit more than one claim for every half year under this notification / rule 5B.
2. Filing of return is compulsory and refund shall be filed after filing Service Tax return. If no return is filed, no refund claim is allowed and if filed, may be rejected.
3. Half year would mean a period of six consecutive months with first half year beginning from 1^st April every year and second half year beginning from 1^st October every year.
4. If more than one return is required to be filed for any half year, the time limit of one year shall be ascertained from due date of filling of return for later period. Thus, where, say, two quarterly returns are required to be filed in any half year, one year shall be computed from end of due date of filing second quarter return.
5. Refund claim should be accompanied by copy of respective half yearly return for which refund is being claimed.

For claiming refund under rule 5B of the Cenvat Credit Rules, 2004, amount shall be computed as under:

Where,

The refund amount shall also be subject to following conditions:

1.  the refund of unutilised Cenvat credit shall not exceed an amount of service tax liability paid or payable by the recipient of service with respect to the partial reverse charge services provided during the period of half year for which refund is claimed;
2. the amount claimed as refund shall be debited by the claimant from his Cenvat credit account at the time of making the claim;
3.  in case the amount of refund sanctioned is less than the amount of refund claimed, then the claimant may take back the credit of the difference between the amount claimed and the amount sanctioned;

The Assistant Commissioner / Deputy Commissioner to whom the application for refund is made may call for any document in case he has reason to believe that information provided in the refund claim is incorrect or insufficient and further enquiry needs to be caused before the sanction of refund claim. At the time of sanctioning the refund claim, the Assistant Commissioner / Deputy Commissioner shall satisfy himself or herself in respect of the correctness of the refund claim and that the refund claim is complete in all respects.