How to availing Notification no 14/2012 ST - RESEARCH & DEVELOPMENT CESS.

[Yatin Bhopi]

Dear experts

We are paying technical assistance fees to our parent company. Since it is our associate company we make monthly provisions in the books and we are liable to pay service tax on this provisions under head Intellectual property service other than copy rights on this technical assistance fees. We are paying Research and Development Cess under provisions of section 3 of the Research and development Cess Act, 1986 (32 of 1986) to Reserve Bank of India on quarterly basis.

We wish to avail benefit of Notification no 14/2012 ST dated 17.03.2012 to adjust Research and Development Cess paid against service tax liability under intellectual property service after fulfilling all conditions.

My query is:

How will we adjust the R & Cess in below cases. R & D cess is paid in April 15 ₹ 15000

Month Technical assistance fees Service tax

Jan-15 ₹ 100000 14000

Feb-15 ₹ 100000 14000

Mar-15 ₹ 100000 14000

April-15 ₹ 100000 0 (liability is 14000 and cess paid is ₹ 15000

Or

We have to just pay the service tax after deducting R & Cess Payable each month considering R & D cess will be paid in April 15

Month Technical assistance fees Service tax

Jan-15 ₹ 100000 9000 (14000-5000)

Feb-15 ₹ 100000 9000 (14000-5000)

Mar-15 ₹ 100000 9000 (14000-5000)

Can anyone guide? I hope have clarified my query correctly

[Yash Goyal]

Dear Yatin,

In my view, the second instance would be appropriate. Please note detailed analysis on the same as under.

I have reproduced the text of the referred notification below and underlined the relevant parts for ease of reference.

"In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service involving import of technology, from so much of the service tax leviable thereon under section 66B of the said Act, as is equivalent to the amount of cess payable on the said import of technology under the provisions of section 3 of the Research and Development Cess Act, 1986 (32 of 1986), subject to the following conditions, namely:-

(a) that the said amount of Research and Development Cess is paid within six months from the date of invoice or in case of associated enterprises, the date of credit in the books of account:

Provided that the exemption shall be available only if the Research and Development Cess is paid at the time or before the payment for the service;

(b) that the records of Research and Development Cess are maintained for establishing the linkage between the invoice or the credit entry, as the case may be, and the Research and Development Cess payment challan."

The exemption is available in respect of the amount of cess payable. Also there is no condition that the cess should be paid at the time of claiming the exemption.

The conditions regarding time limit for payment of cess are as follows.

1. Cess must be paid within six months from the date of booking the fees for technical assistance

2. The cess must be paid on or before you have paid the fees to your parent company.

Compliance with the above conditions, and maintenance of records will have to be checked / ensured at your end.

In my view, you can claim deduction of R & D cess in respective months itself.

Trust the above clarifies the issue.

Thanks & Regards

Yash Goyal

AI Summary

Research and development cess adjustment against service tax allowed upon timely payment and linkage of payment records. Exemption allows adjustment of service tax by the amount of Research and Development cess payable on import of technology, provided the cess is paid within the statutory time limit from invoice or credit entry and is paid at or before payment for the service; records linking the invoice or credit entry to the cess payment challan must be maintained. Cess amount alone is the basis for reduction, and where these conditions are met the cess can be allocated to respective months to reduce corresponding service tax liabilities.