Cenvat credit on Part Payment

[Pawan Agarwal]

Respected Seniors,

In number of service contracts mainly related of works contracts services, there can be term of 10% hold from each bill and will be paid after successful commissioning and performance test.

In above case let say a bill of ₹ 100000 plus service tax ₹ 14000, we pay ₹ 104000 to vendor and ₹ 10000 will be on hold. How much cenvat credit we can avail on this payment. What will happen if balance 10% will be paid beyond 12 months of bill date.

[KASTURI SETHI]

Dear Sh.Pawan Agarwal Ji,

Full Service Tax is payable on the billed amount.Therefore, Service Tax involved on the amount of ₹ 10,000/ which is withheld for ensuring completion and deficiency-free service, would not come into picture.Hence second part of question becomes redundant.

[Akash Deep]

Dear Pawan,

Any person bearing the burden of tax shall be eligible for credit of the tax and to the extent of burden borne by him. As per section 67 taxable value for any taxable service would be gross amount charged. So if SP has charged you ₹ 1 Lakh service tax shall be payable on this amount (assuming rate of St at 14%) would be 14 thousand. now once service provider collected the service tax indicated in the invoice raised by him, he has to deposit it with central government. The deduction of ₹ 10,000/- by you as per contract, shall not affect his liability to pay tax collected from you (i.e. ₹ 14000/-) to central government. even though you have paid him only ₹ 104000/- Sp has to pay ₹ 14000/- to the central government. You can take credit of ₹ 14,000/- irrespective of the fact that Sp actually paid the tax collected from to the central government.

[Pawan Agarwal]

Dear Sir,

As per cenvat rules if we fails to pay amount of invoice plus service tax to service provider within three months of invoice date, we have to pay service tax equal to cenvat taken earlier.

Please provide reference of any section/guidence/case law which allows us as mentioned by you.

[KASTURI SETHI]

Yes. I agree with the views of Sh.Akash Deep, Sir. Explained very well in detail.

[Rajagopalan Ranganathan]

Sir,

Service charges for providing the service is ₹ 1,00,000/-. The amount withheld by you, that is ₹ 10,000/- is part of ₹ 1,00,000/-. The amount of service tax paid is ₹ 14,000/-. In effect after withholding ₹ 10,000/- you are paying ₹ 90,000/- towards service charges. Therefore since you have paid the service tax of ₹ 14,000/- to the service provider you can take the credit of ₹ 14,000/-.

r

[KASTURI SETHI]

Undoubtedly Sir.

AI Summary

Cenvat credit on part payment: credit may follow invoice-based tax burden despite contractual withholding, with reversal risk for delayed payment. Cenvat credit arises where a service invoice records the full service charge and tax but the recipient withholds part of the contract price; the person bearing the burden of tax may claim credit of the service tax shown on the invoice because tax is payable on the gross amount charged. A compliance concern is that delayed payment of the invoice amount plus service tax may trigger an obligation to discharge equivalent tax or reverse earlier cenvat credit under the applicable cenvat compliance mechanism.