STax payment from CENVAT / Cash

[CA AJAY KUMAR AGRAWAL]

Dear experts,

Can anybody describe in detail whether in any case payment under RCM & against declared services can be made from Cenvat Credit ?

[Ganeshan Kalyani]

Sir, the provision is very clearly in mentioning that the service tax liabilit under reverse charge cannot be paid through Cenvat credit. It has to be paid by cash only.

And as regard declared service if it under reverse charge then the above condition apply. If not that Cenvat credit can be used to pay the service tax liability. Thanks.

[Rajagopalan Ranganathan]

Sir,

Rule 2 (p) of Cenvat Credit Rules 2004 states that “output service” means any service provided by a provider of service located in the taxable territory but shall not include a service,-

(1) specified in section 66D of the Finance Act(Negative list); or

(2) where the whole of service tax is liable to be paid by the recipient of service.

To pay service tax utilizing cenvat credit you must be a service provider. By the above definition where the whole of service tax is liable to be paid by the recipient of service is not an 'output service. Therefore where the whole of service tax is liable to be paid by the recipient of service such recipient of service cannot be treated as output service provider and therefore he has to pay service tax by cash only.

[KASTURI SETHI]

Clear-cut replies by both experts. No doubt left.

[CA AJAY KUMAR AGRAWAL]

Dear experts,

Thank you very much.

[YAGAY andSUN]

Liabilities under RCM can only be knocked off through making e-payments (through cash) only.

[Ganeshan Kalyani]

Clear cut reply has been posted by Sri. Rajagoplan Sir. Anyway Thanks M/s. YAGAY and Sun for touching upon the query. Thanks. Enriching.

AI Summary

Reverse charge on services must be paid in cash; Cenvat credit cannot discharge reverse charge liabilities. Service tax liabilities under the Reverse Charge mechanism and declared services where the whole tax is payable by the recipient must be paid by cash (including e-payment); such recipient-liable services are excluded from the definition of 'output service' under the Cenvat Credit Rules, and therefore Cenvat credit cannot be used to discharge those reverse charge liabilities.