Service tax Credit observation

[Pradeep Kumar]

Dear All

 

Kindly provide your opinion on the following observations :-

 

a) As per rule 7 of Point of taxation rules, 2011 , Service tax under reverse charge is required to be paid at the time of payment of Value of service to the party concerned.

 

one exception is there, if payment is not made within a period of 3 months from the date of invoice, POT will be the date immediately following the period of 3 months.

 

My Queries in the above provision :-

 

Trade payable parties which fall under Reverse charge mechanism have balances outstanding for more than 3 months and against such balances company has taken service tax credit, which in my opinion should be reversed and will be allowed after 3 months from the date of invoice as and when the payment to party made by company.

 

b) Rule 4(7) of CCR,2004,

First proviso says in the case the payment of value of input service and the service tax paid or payable as indicated in the invoice, bill or, as the case may be, challan referred to in rule 9, is not made within three months of the date of invoice ,then manufacturer shall pay the amount of cenvat credit availed on such input service and the same will be allowed as and when the payment will be made by manufacturer.

 

My Queries in the above provision :-

 

 

Trade payable parties have balances outstanding for more than 3 months and against such balances company has taken service tax credit(other than reverse charge mechanism), which in my opinion should be reversed and will be allowed after 3 months from the date of invoice as and when the payment to party made by company.

 

Regards

Pradeep Kumar

[Ganeshan Kalyani]

What you are expecting. In fact you have raised the query as well as answered it very well. If you seek confirmation then according to me your understanding is right.

[DR.MARIAPPAN GOVINDARAJAN]

For the first question - the service tax credit on service tax on Reverse Charge Mechanism can be taken only after the payment of service tax to the credit of the Department.

For the second question - The credit on input service can be taken at the time of receiving the invoice. But the said invoice shall be paid within 3 months from the date of invoice. If you are not able to pay the said invoices you have to reverse the credit already taken.

[Pradeep Kumar]

Thanks Ganeshan and Mariappan sir

@Mariappan sir, than what is the use of exception of Rule 7 of POT rules as I mentioned in first query.

Regards

Pradeep Kumar

[KASTURI SETHI]

Maximum period of relief/relaxation for assessee under reverse charge mechanism is three months. it is benefit of 'exception' under Rule 7 of POT Rules.

[Pradeep Kumar]

Thanks Kasturi Sir

Let us discuss with an example, My observation in first query:

a) Service of Advocate used by company (july,2015 month) say ₹ 100000 and service tax 14%. then company passed entry

Legal services ac dr 100000

Service tax recoverable ac dr 14000

To Advocate ac 100000

To service tax payable ac 14000

Now client paid the liability of service tax in the month of august(5/6th) and take the credit in the month of august,2015 which will be used to set off against September 2015 service tax liability.

Now assume payable to advocate not made till December,2015, now my observation was that as company has taken the benefit of service tax credit against the September 2015 service tax liability and paid net amount to department which actually should have been paid fully and the benefit of service tax credit would have been availed as and when the payment to the advocate will be made.

Kindly consider and reply on my observation.

Regards

Pradeep Kumar

[Rajagopalan Ranganathan]

Sir,

As per the amended second proviso to rule 4 (7) of Cenvat Credit Rules, 2004 by Notification No. 06/2015-CE (NT) dated 1.3.2015 with effect from 01.04.2015 "in case the payment of the value of input service and the service tax paid or payable as indicated in the invoice, bill or, as the case may be, challan referred to in rule 9, except in respect of input service where the whole of the service tax is liable to be paid by the recipient of service, is not made within three months of the date of the invoice, bill or, as the case may be, challan, the manufacturer or the service provider who has taken credit on such input service, shall pay an amount equal to the CENVAT credit availed on such input service and in case the said payment is made, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these rules.

Since in respect of services provided by an advocate service tax payable shall be paid by the receiver of the service, you can take credit immediately on depositing the service tax to Government Account and non payment of fees to the advocate till December 2015 will not affect your right to take the credit.

[Ganeshan Kalyani]

Your understanding is right and it is well supported by Mariappan Sir, Kasturi Sir and Rajagopalan Sir. Further I have observed in most of the time payments are made within three months by the Corporate companies as service provider will also not rest untill he gets his remuneration. However if you aren't sure the payment are not happening within the tile limit you can take credit only after payment is made to the service provider. It is your choice now. Thanks.

[Pradeep Kumar]

Thanks to all

Kindly give me another clarity on POT rules. If rule 7 of POT rules won't applicable , will Rule 3 will be applicable?

And if yes, then service tax liability should be booked from the date of payment or date of invoice whichever is earlier.

So date of invoice should be the service tax liability.

Regards

Pradeep Kumar

AI Summary

Service tax credit must be reversed if payments to providers are unpaid for over three months, per Rule 4(7). A forum participant sought clarification on service tax credit under the reverse charge mechanism and related provisions. The main concern was whether service tax credit should be reversed if payments to service providers remain outstanding for over three months. Respondents confirmed that credit should be reversed if payments exceed this period, aligning with Rule 7 of the Point of Taxation Rules, 2011, and Rule 4(7) of the Cenvat Credit Rules, 2004. The discussion included examples and amendments to clarify when credits can be claimed and the conditions under which they should be reversed.