Cenvat credit for Service Tax on Royalty

[Pradeep Kaushik]

Respeted Sir/s,

In our case, we have to pay Royalty on Sale to In Korea and  commission on Guarantee. This is our liability to deposit the Service Tax on the Remitted amount.

1. Is service tax applicable on Commission on Guarantee.

2. Can we adjust the Liability from our Cenvat credits.

3. If we have to deposit the Sevice Tax then can we take the Cenvat Credit of the Service Tax deposited.

 

Please clarify.

Best Regards.

Pradeep Kaushik

 

[YAGAY and SUN]

Yes, you are liable to pay the service tax on Commissioner on Gurantee under BAS.

No, you can't adjust the liability from your CENVAT credit Account. Under Section 66A, you need to pay it in cash.

Yes, you can avail the CENVAT credit against such payment of Service Tax

[Ramanujam Varadarajan]

1.You are liable to service tax on Commission on Guarantee under reverse charge basis under Section 66A . Category of service would depend on the nature of service rendered viz. whether it is commission on corporate guarantee or royalty on sale.

2. Payment of service tax to be made under reverse charge cannot be adjusted against cenvat credit and is to be paid by cash.

3. Service tax paid under reverse charge is eligible for Cenvat Credit, subject to restrictions provided under Cenvat Credit Rule, 2004.

[Vijay kumar]

1. Not every expenditure incurred in foreign currency nor amount paid to a person/firm abroad is liable to service tax under Section 66A. There has to be a service which is taxable and the foreign firm should not have a permanent establishment in India. In your case, please elaborate what is the nature of the activity pertaining to "Commission on guarantee" and whether any service is involved. If so, the taxability thereof can be examined.

2. Service tax in terms of Section 66A has to be paid in cash and cenvat credit cannot be used because such amount is not paid in the capacity of a service provider but as a service receiver under the legal fiction created by the statute.

3. If tax is payable under Section 66A, you can take credit of the same provided it is an input service for you in terms of Rule 2(l) of the CCR, 2004. In this regard, pl refer to CBEC Circular F.No.BI/4/2006-TRU dated 19th April, 2006 and Board's Letter F.No. 354/148/2009-TRU Dated 16-7-2009.

1) Yes, you are liable to pay the service tax.

2) No, you can not adjust the liability from your CENVAT credit Account. Under Section 66A, you will have to pay it in   cash only.

3) Yes, you can avail the CENVAT credit against such payment of Service Tax.

[RAM SHARMA]

Dear Experts,

We have paid service tax on royalty from our cenvat credit due non clearty now service tax department raise a demand for payment of service tax alongwith interest from 2007. My question is i have paid service tax through cenvat credit now i am ready to pay in cash. So why i do pay interest. Can you suggest me any legal advice in this regards.

thanks

[RAM SHARMA]

SUPPOSE I HAVE PAID SERVICE TAX ON ROYALTY THROUGH CENVAT CREDIT THEN WHAT ARE THE CONSEQUENCES IN THIS REGARD. WILL WE HAVE TO PAY INTEREST.

[Vijay kumar]

Dear Sir, as per the Department, what is paid by you through debit in cenvat credit account is not tax. Hence they have issued the notice demanding the tax in cash and consequently the interest thereon. From the facts, it appears that the action of the Department is legal and proper. If you pay the tax with interest in cash, you may take back the amount debited earlier in your account, preferably after intimating the Department. If the tax paid in cash is an input service for you in terms of Rule 2(l) of CCR, 2004 you can take credit of such amount also and utilize it for payment of service tax on other services, if any, rendered as a service provider.

[JAMES PG]

Cenvat credit can be utilised only for payment of Duty on finished goods or payment of Service Tax for output service. Definition of output service does not include reverse charge payments and hence Cenvat credit cannot be utilised for such reverse charge payment

AI Summary

Reverse charge liability: service tax on royalty and guarantee commission must be paid in cash; credit claim possible.
Service tax on royalty and commission on guarantee is payable under the reverse charge mechanism and must be discharged in cash; CENVAT credit cannot be used to pay that liability. Service tax paid under reverse charge is eligible for CENVAT credit subject to the Cenvat Credit Rules, 2004. If CENVAT was wrongly used earlier, the department may demand tax with interest in cash, and the taxpayer may pay in cash, seek re-credit of the earlier debit, and then claim credit if the cash-paid tax qualifies as an input service under the CCR, 2004.