Admissibility of ITC in case of suspended service tax

[Guest]

Service tax on Telecom remained suspended for about a year or so as a result of a SC interim order which was later on restored.Howrever the Telecom sector did not pay any tax for this period.

My query is whether they are entitled for an ITC for this period whence they paid zero tax

[KASTURI SETHI]

Pl. elaborate your query. How you expect taking credit without payment of tax ? Payment Service Tax was one of the basic requirement for availing Cenvat Credit and the position is same under GST regime.

As per Section 17(5) (i) of CGST Act, ITC is not allowed. See below :

Section 17(5)(i) of CGST Act "any tax paid in accordance with the provisions of sections 74, 129 and 130."

Anyhow elaborate your query with full details.

[Guest]

Dear sir

Preposition is like this that the court had suspended the sales tax for a period of one year through an interim order. That interim order was later on withdrawn but during that period Telecom companies neither charged nor recovered tax from the customers.

But since they have inputs of goods and services used in the supply therefore they are now carrying forward that ITC and adjusting against the output tax of the present tax periods.

I just want to know whether this is legally possible in case there is no output paid and can that ITC be adjusted against future outputs by carrying it forward.Are there any case laws covering such a scenario. The tax payers claim that they did not charge because of the restraining order but since they had an accumulated ITC so they can adjust it against future tax by way of carry forward.

What will be the treatment of the suspended tax...will that be treated as exempt or zero rated even when there is no explicit provision available.

Kind regatds

[KASTURI SETHI]

You have mentioned the word, 'Sale Tax' above in first line. Are you talking about sale tax or service tax ? Was sale tax suspended by the Court ?

[Guest]

Yes sir this is sales tax on services or service tax.

And the court suspended this service tax.

Kind regards

[KASTURI SETHI]

In the initial query you have mentioned Service Tax was suspended for about a year and in your second query you have mentioned that Sale Tax was suspended for a year. In pre-GST era either Service Tax was leviable or Sale Tax was leviable Sale tax was applicable on sale and Service Tax was applicable on service. There is a world of difference between both. No opinion can be posted without going into the copy of Order of Supreme Court and complete facts of the case /issue.

[Guest]

Thank you sir

How can I upload the SC decision...pl guide.

Kind regards

Javed Ahmed

[KASTURI SETHI]

Mention order no., date of decision, name of parties and address of Appellant & Respondent I shall trace out.

AI Summary

Input Tax Credit entitlement questioned where service tax was suspended; credit generally requires tax payment and factual order. Advises that ITC/Cenvat typically requires levy or payment of the underlying tax and cannot be claimed where service tax was suspended and neither charged nor paid; cites an exclusionary CGST provision relating to credits arising from certain recovery or assessment provisions and emphasises that the precise court order and factual details are necessary to determine whether credits can be carried forward or how the suspended tax should be characterised.