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.

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.