Service Tax Credit

[SURYAKANT MITHBAVKAR]

We have booked professional fees bill for our consultant but payment will made on after one year period. While taking service tax credit we are assuming date of payment to consultant which is current.

The above case the service tax credit is availed after one year from the date of invoice issued by consultant but immediate after payment made to consultant.

Please advise whether the above credit is permissible under rule of service tax credit.

[KASTURI SETHI]

Not allowed as per Rule 4(7) and proviso to Rule 4(7) of Cenvat Credit Rules, 2004 as amended.

[Rajagopalan Ranganathan]

Sir,

The first proviso to rule 4 (7) of Cenvat Credit rules 2004 stipulates that -

""Provided further that 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 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, except an amount equal to the CENVAT credit of the tax that is paid by the manufacturer or the service provider as recipient of 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.

In your case you take the credit on the basis of your consultant's bill immediately after receipt of the same. Then you reverse the same since you are paying the bill amount within three months from the date of the bill. Then when pay the bill you take the credit again. a possibility that audit objection will be raised against you on the ground that you have taken the credit beyond one year from the date of the bill. The last sentence of the proviso stipulates that "subject to the other provisions of these rules". This provision will act as villain against you since the third proviso of rule 4 (1) stipulates that "the manufacturer or the provider of output service shall not take CENVAT credit after one year of the date of issue of any of the documents specified in sub- rule (1) of rule 9". However in my view you case is arguable one.

[Ganeshan Kalyani]

I endorse the views submitted by Sri Kasturi Sir and Sri Rajagopalan Sir. all aspects have been covered in their reply. Thanks.

[Rajagopalan Ranganathan]

Sir,

In continuation of my reply dated 21.03.2016, in my view we may argue that the condition of taking credit within one year from the date of invoice is applicable to taking credit for the first time. If you take the credit after reversing it initially, then for that purpose the restriction of taking credit within one year from the date of bill will not apply.

[Ganeshan Kalyani]

Sri Rajagopalan Sir, with due respect to you I would like to say that this may be allowed by department if the situation was not known to the assesse. He took the credit first and due to unsettled dispute the payment was not made and again after the matter is settled and payment is made the credit which was reversed is allowed to take. Here the querist is aware that payment is going to be made only after a year. Hence I feel that audit objections may come. Thanks.

[Rajagopalan Ranganathan]

Sir,

Please refer to Circular No.990/14/2014-CX.8 dated 19.11.2014. I tis clarified in para 3 of this circular that "the purpose of the amendment made by Notification No. 21/2014-CE (NT) dated 11.07.2014 is to ensure that after the issue of a document under sub-rule (1) of Rule 9, credit is taken for the first time within six months of the issue of the document. Once this condition is met, the limitation has no further application. It is, therefore, clarified that in each of the three situations described above pertaining to Rule 4(7), Rule 3(5B) or Rule 4(5) (a) of CCR, 2004, the limitation of six months would apply when the credit is taken for the first time on an eligible document. It would not apply for taking re-credit of amount reversed, after meeting the conditions prescribed in these rules".

Now the limit of 6 months has been revised as 'one year'.

[Ganeshan Kalyani]

I agree with you Sir.

Seeking clarification - in the second last sentence of your reply which says 'it is, therefore, clarified in each of the three situation.....' triggers a question in my mind that whether this privilege is available to all services or only those three. Thanks.

[Rajagopalan Ranganathan]

Sir,

Only under Rule 4(7) of CCR, 2004, Rule 3(5B) of CCR, 2004, and Rule 4(5)(a) of CCR, 2004 the manufacturer or ouput service provider is mandated to reverse the credit taken if the condition prescribed by the above rules are not satified and such reversed credit can be taken back once the condition prescribed is complied with. Under no other rules such provisions are prescribed. Hence the circular 990/14/2014-CX.8 dated 19.11.2014 is applicable to above mentioned three rules. This is my view.

[Ganeshan Kalyani]

Sir, thanks for clarification Sir.