Changes in Cenvat Credit Rules-Finance Act 2014

[Srivatsan Krishnamachari]

Dear Learned Friends,

Notification No;21/2014 dated 10/07/2014 specifies a time limit of six months for availing Cenvat credit for manufacturers and Service Providers.In case of Services wherein the service recipient has the responsibility to pay the entire tax under Reverse Charge mechanism such as legal consultancy services the Service Recipient can avail cenvat credit of the tax paid after the payment of tax is effected though the Service Recipient has not paid the Service Provider for the value of the service received. The only condition here, is the appropriate tax should have been paid unlike Partial Reverse Charge Mechanism where in not only the tax but also the value of the Service received should have been paid .My query is ; does this 'Six Months 'time limit applies to Service Recipient.

What will be the implication under 'Reverse Charge Mechanism if the Service Recipient pays only the tax in time and not the value of the Service received even after 'six months' of the Bill.If the Service Recipient under 'Partial Reverse Charge Mechanism' pays only the Tax first but pay the Service Provider only after six months for the value of the service received,can he still avail the Cenvat Credit after six months .Will he be penalized if he takes the Cenvat Credit.

Secondly is this change effective from 11/07/2014 or from 01/09/2014?Kindly clarify.

Thanks and With Regards,

K.Srivatsan

[DR.MARIAPPAN GOVINDARAJAN]

If you pay the service tax under Reverse Charge Mechanism wholly to the credit of the Central Government you are liberty to avail credit for the same. In the Rule there is no condition, to my view, the credit can be availed only after the payment to the service provider.

The six months limitation to avail credit is effective from 01.09.2014.

[Vinay Sharma]

As per 2nd proviso to Rule 4 (7) Credit in case of partial reverse charge can be taken only after the payment of tax is made as well as the value of input service is paid.

In the present case though tax has been paid but service value not paid to service provider, therefore you can not take credit of the same. If you pay to service provider after 6 months then also you can not claim the credit because 6 months time from invoice date has completed.

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AI Summary

Cenvat credit time limit restricts claims where reverse charge or supplier payment conditions for input services remain unmet. A six month limitation to avail Cenvat credit is effective from 01.09.2014. For full Reverse Charge, credit may be availed once the recipient pays the tax to the government even if the supplier has not been paid. For Partial Reverse Charge, Rule 4(7) proviso requires payment of both the tax and the value of the input service to the supplier; if the service value is unpaid and six months from invoice date have passed, credit cannot be claimed.