Utilization of cenvat credit of old pending bills.

[RAVI ANJARA]

Sir, We(a PSU) have around ₹ 98 lacs of bills issued by a PSU for under ground cable laying work in 2001 to 2003. The matter was with arbitrators for around 12 years and now the arbitrator has ordered to pay the bill now. The invoices were issued to us in 2001 to 2003 but it was seized due to legal disput. Service tax has been claimed in invoices at 8%. Now the quary is : 1. Can we take the cenvat credit under input service ?

2. Should we considre the RCM/SBC ?

3. Service tax has been claimed at the rate of 8% (Rate at that time) , we are bound to pay any service tax under any rules?

[KASTURI SETHI]

Sh.RAVI ANJARA JI,

When the matter is under litigation with any court, the date of order of the court will be relevant date inasmuch as your invoices remained in the custody of court.You can take credit on input service, if otherwise eligible.

2. No.

3. No.

During that period there was no time limit for availing Cenvat Credit. Case laws can be traced out if there is any problem.

,

[Akash Deep]

Dear Ravi,

very interesting case. would love to work on it if got paid. i guess your apprehension is about one year limit. i would suggest you to read case of Osram Surya by Hon'ble Supreme Court on the issue regarding availment of CENVAT Credit.

do not connsider SBC or RCM as transaction happen in 2001-2003 and charging section on RCM came only on 18.4.2006.

if the services received by you is taxable and not exempted. pay the tax to service provider.

you may find yourself in a situation where you have to pay tax but not eligible to take credit on the invoices as as per the limit prescribed under CCR, 2004.

[KASTURI SETHI]

SH.RAVI ANJARA JI,

After going through Sh.Akash Deep, an expert's reply dated 12.3.2016, I thoroughly re-examined the whole issue.

Period of your invoices is 2001 to 2003 and these pertain to Service Tax. For the first time, Service Tax Credit Rules, 2002 were inserted vide Notification No. 14/2002-ST dated 1.8.2002 (effective from 16.8.2002) and Cenvat Credit was allowed w.e.f. 16.8.2002 subject to three major conditions:-

1.Input Service and Output Service must fall in the same category of taxable service.

2.In any other case input service credit was allowed on or after 14.5.2003 (after issuance of bill)

3. After Full payment of value and Service Tax.

These Service Credit Rules, 2002 were superseded by Cenvat Credit Rules, 2004 vide Notification No.23/2004-CE dated 10.9.2004 wherein across the board Cenvat Credit was allowed. Hence Cenvat Credit Rules, 2002 remained in force up to 9.9.2004.The time limit of six months was incorporated vide notification no.21/14-CE(NT) dated 11.7.14 and time limit was increased up to one year vide Notification No.6/15-CE(NT) dated 1.3.15 (effective from 1.4.15). In other words, condition of payment of value and input service remained in tact up to 31.3.15. Thereafter, w.e.f. 1.4.15 condition of only payment of Service Tax was made mandatory before taking credit. A period of three months was provided for realisation of full value of invoice.

From 16.8.2002 to 10.7.2014, no time limit was in force for availment of Cenvat Credit.There is one judgement of High Court on such issue which took into consideration the period under which invoices remained in the custody of Railways and in your case invoices remained in the custody of the court.These invoices pertained to inputs. The condition of payment of ST for availment of input service credit remained in force from 16.8.2002 onwards i.e. till date.

Now in view of the above legal position, you cannot take input service credit on the strength of invoices issued before 16.8.2002. From 16.8.2002 onwards there is condition that both input service and output service should fall under the same category of service. You do not fulfil.This condition of same input service and output service remained in force till 13.5.2003. Only period left is 14.5.2003 to 31.12.2003 for which you can fight if the amount of cenvat credit is substantial and get the natural justice.The above mentioned judgement of High Court can be helpful to you if you opt for litigation. Without litigation you cannot get this credit. This is my analysis.

[Suryanarayana Sathineni]

Dear Friend

I fully agree with the views expressed by Mr. Kasturi Sethi Ji

It is implied that Cenvat credit cannot be availed on such very old invoices unless otherwise it is proved that you were unable to avail the credit during the relevant period due to some reason beyond your control like department seized such documents etc., and your correspondence informing the jurisdictional authorities that you were unable to avail the credit because of seizure of documents and the credit will be taken after the issue is settled and the invoices are returned to us etc.

However, in your case, the Bills were pending with the arbitrator for quite a long time for the sake of some decision/clarification etc., and now you need consider the to pay the Differential ST and SBC in terms of point of taxation.

Best Regards

Suryanarayana

[KASTURI SETHI]

Sh.Surya Narayana Ji,

Thanks a lot, Sir. Supporting the views is always a source of inspiration. It is natural that views supported are legally correct and it has passed through the test.

[CSSANJAY MALHOTRA]

Dear Mr. Ravi & Friends,

My submission in response to Query No 3 is addressed below:

Can the present rate of ST be made applicable to the old invoices ? - NO
Will the differential amount of ST has to be paid in terms Rule 2 A of Point of Taxation Rules,2011 ? Rule 2A was inserted vide Notification No.4/12-ST dated 17.3.12 (effective from 1.4.12.) - NO
Can these rules be applied now retrospectively for payment of differential amount of ST in respect of invoices pertaining to the past period ? NO

SUBMISSION

"Rate of Service Tax applicable for the present issue is the Rate applicable on the Date of rendering service" Liability can;t be fastened on the service receiver merely because the Invoices were in the Custody of Arbitrator.

Rule 4 of Service Tax Rules 1994 determines the Point of Taxation. One of the Important aspect, which is squarely applicable to the case as I understand is that the "Service has been provided before the change in Effective rate of Service Tax & Furthermore Invoices has been issued before the effective change in rate of Tax" and the party is making payment now...., hence the POT is the "Date of Invoice" which is 2001 to 2003

Retention of Invoice with the Court does not change the delivery period of Service (Issues with the Arbitrator may be financial settlement).......Central Excise Department can't overrule the then existing provisions in Service Tax Rules for issue of SCN/Demand of Duty........

Supreme Court citation is already there wherein it has been held that "Taxing a particular statute can't be done retrospectively and has to be prospective wherein liberal provisions i.e. beneficial piece of legislation can be applied retrospectively.....

[RAVI ANJARA]

Dear Sirs,

Thank You very much for your valuable suggestions and views.

[Ganeshan Kalyani]

I have gone through the entire discussion above and the views submitted by my learned experts. Truely satisfactory replies which is based on in depth analysis of the relevant provision. Thanks it enriched my knowledge. Pats to all experts above. Thanks.

AI Summary

Cenvat credit eligibility limited by historic rule regime; may require litigation to claim credit, potential restrictions apply. Cenvat credit on 2001-2003 invoices depends on the historical credit regime: invoices predating the August 2002 credit rules generally cannot support input service credit; credit available from 16 August 2002 was subject to matching/payment conditions that evolved until time limits were later introduced. RCM and later cesses do not apply retrospectively. Point of taxation fixes the applicable tax rate by invoice/service date. Recovery of credit where invoices were held by arbitrator may require litigation and proof of inability to avail earlier.