Cenvat Credit

[Team PMP]

Dear Expert,

Brief:

Assessee is a partnership firm having business of builder and developers. Incorporated during the period 2011 - 2012. He was not regular payer of service tax and it opted for VCES scheme and paid all outstanding service tax till the VCES period scheme Dec-2012.

Facts:

1. The total Cenvat credit till the VCES scheme period was ₹ 7 lakhs.
2. Assessee never filed the service tax return for the period covered under VCES scheme i.e from Apr-11 to Dec-12.
3. Service Tax Liability on output services for Jan-13 to Mar-13 was ₹ 6 lakhs
4. Assessee assumed that Cenvat credit of ₹ 6 lakhs was available for payment of service tax liability and hence no service tax is due for the quarter.
5. Assessee failed to file Service Tax return Jan-13 To Sep-13
6. Assessee filed its first return for the period of Apr-13 to Sep-13
7. The balance Cenvat credit of ₹ 1 lakh pertaining to VCES period was utilized for payment of Service tax liability for the quarter Oct-13 to Dec-13.

Objection raised by Department:

The Cenvat credit of ₹ 6 lakhs was never availed by Assessee in its return. As per new rules of CENVAT credit, the Cenvat credit should be availed within 12 month of date of invoice. As on today’s date the period of 12 month have been already lapsed and hence the Cenvat credit for the same cannot be availed today. Department is of view that even after filing the delayed service tax return for the period Jan-13 to Mar-13, Assessee is not eligible to claim the said Cenvat Credit of that period because the date of filing the service tax return is post the amendment of CENVAT credit Rules

Our View:

Our view is that, though the return is getting filed after the amendment in CENVAT credit rules i.e 1 Sep, 2014, it pertains to period prior 1 Sep, 2014. Hence the time limit of availment was not applicable to that period. Therefore Assessee should get the CENVAT credit of 6 lakhs

Query:

Now, we need your expert advice on the above matter that can we availed and utilize the Cenvat credit for that quarter which is not filed but this period is of before October 2014?

[Ganeshan Kalyani]

At the outset the ST payment made during the VCES period is considered as complete compliance and no assessment or audit shall be carried out for this period unless there is suppression of facts or concealment of facts is done. Secondly the time period for availing the credit after the amendments have created lot of difficulties. In some case laws it is given that the time period of taking credit will apply to the credit pertaining to period before amendment if the same is taken after amendment period. If that is the case then credit in your case shall be disallowed. I have tried to found out the favorable citation but could not come across. Hence I welcome views of experts colleague as well. Thanks.

[Team PMP]

My query is very simple. I have to file return for the period January 2013 to March 2013. There is also CENVAT which is not availed for that period. Can i availed now by filing belated return by paying late fee ?

[Mahir S]

No Sir..

[KASTURI SETHI]

Sh. PATIL MHATRE Ji,

I agree with both Sh.Mahir S., Sir and Sh. Ganeshan Kalyani, Sir. Sh.Ganeshan Kalyani, Sir has emphasised on time factor and he is absolutely right. Thus you are not eligible for cenvat credit on both factors i.e. merits as well as time factor. For your additional information, relevant extracts of FAQs based on Board's No. Circular No. 170/5/2013-S.T., dated 8-8-2013 and Board's Circular dated 20.1.14 are given below:-

Q No.21. Whether the Cenvat credit is admissible on the inputs/ input services used for provision of output service in respect of which declaration has been made under VCES for payment of any tax liability outside the VCES?

Ans. The VCES Rules 2013 prescribe that Cenvat credit cannot be utilized for payment of tax dues under the Scheme. Accordingly the tax dues under the Scheme shall be paid in cash.

The admissibility of Cenvat credit on any inputs and input services used for provision of output service in respect of which declaration has been made shall continue to be governed by the provisions of the Cenvat Credit Rules, 2004.

Q22. (a) Whether the tax dues amount paid under VCES would be eligible as Cenvat credit to the recipient of service under a supplementary invoice?

(b) Whether cenvat credit would be admissible to the person who pays tax dues under VCES as service recipient under reverse charge mechanism?

Rule 6(2) of the Service Tax Voluntary Compliance Encouragement Rules, 2013, prescribes that Cenvat credit cannot be utilized for payment of tax dues under the Scheme. Except this condition, all issues relating to admissibility of Cenvat credit are to be determined in terms of the provisions of the Cenvat Credit Rules.

As regards admissibility of Cenvat credit in situations covered under part (a) and (b), attention is invited to Rule 9(1)(bb) and 9(1)(e) respectively of the Cenvat Credit Rules.

Issuance of Discharge Certificate under VCES and availment of Cenvat credit - Clarification

Circular No. 176/2/2014-S.T., dated 20-1-2014

As per Rule 9 (1) (e) of Cenvat Credit Rules read with above clarifications, Service receiver is eligible for cenvat credit on the basis of your challan (paid in cash) in VCES.

[vasudevan unnikrishnan]

Credit on inputs/input services received during period covered by VCES is admissible.The FAQ is only regarding making payment of VCES dues from Cenvat,which can not be done so.

Again, time limit of ONE year will operate nly after the date of amendment.Since you are filing the returns for pre amendment period,no time limit would be applicable.It has to be construed that you had availed Cenvat in the relevant quarter/half year and adjusted towards the tax dues.The failure to file return within due date would not adversely affect Cenvat credit.Of course, for delayed filing of ST3 the fine/penalty will also have to be paid.

In nutshell, the stand taken by the person raising querry is correct,accdg to me.

[KASTURI SETHI]

Sh.Patil Mahatre Ji,

There are so many factors involved in this issue/case.It is risk prone. It is not free from the rigours of litigation. If credit availed at this juncture, the possibility of inviting SCN cannot be ruled out. Pl. do not forget the benefits of VCES availed by you.

AI Summary

Building Firm's Cenvat Credit Claim Disputed Due to Lapsed 12-Month Rule Despite VCES Payment for 2012 Dues A partnership firm in the building and development sector, which had not regularly paid service tax, utilized the Voluntary Compliance Encouragement Scheme (VCES) to clear outstanding dues up to December 2012. The firm believed it could use a Cenvat credit of 6 lakhs from this period to offset service tax liabilities for the first quarter of 2013, despite not filing returns for that period. The tax department contested this, citing a rule requiring Cenvat credit to be claimed within 12 months, which had lapsed. Experts debated whether the firm could still claim this credit, considering the rule changes occurred after the relevant period.