Transfer of Service tax credit to new Number

[GST CMS]

Dear All,

Service provider is Registered in the state of Maharashtra and having its Service tax number there. He has accumulated service tax credit in last return filed for the year 2015.

He has opened new office in the state of Rajasthan and availed new service tax registration and number there. Since output liability is being generated from state of Rajasthan, Service provider has transferred closing balance of service tax credit accumulated in Maharashtra number to Rajasthan number (By showing opening balance of service tax credit equal to closing balance of Maharashtra number)

Legally not permissible but is there any justification to this?

[Ganeshan Kalyani]

It is justifiable if you would have transferred the credit through Input Service Distribution mechanism.

[KASTURI SETHI]

You have contravened Rule 10(2) of Cenvat Credit Rules, 2004.You cannot carry forward such credit on your own. Permission was required from jurisdictional A.C./D.C. You will get relief only through litigation. Now SCN is certain for demand of Cenvat Credit along with interest and penalty.

[GST CMS]

Yes sir,

service provider inhouse team had done this earlier and SCN is already received. Case referred to me now. Legally wrong but which stand should you suggest to justify stand of taxpayer?

[KASTURI SETHI]

There are so many case laws on this issue. You can search in your favour. Credit cannot be denied on technical lapses. Rest depends on your luck. Each case has different facts and circumstances. It depends on your advocate fights your case.

[GST CMS]

Thank you!

AI Summary

Transfer of service tax credit without prescribed procedure risks recovery with interest and penalties unless routed through ISD.
Transferring a closing service tax credit balance from one registration to another without following the statutory procedure contravenes the Cenvat rules; such movement requires either jurisdictional approval or lawful allocation through the Input Service Distributor mechanism, otherwise the taxpayer faces a show cause notice for recovery of credit with interest and penalties and must seek relief through litigation or case specific defences.