Credit availability of the service tax already paid

[Asked by Guest]

If the receiver of service has paid service tax to the service provider and after payment it is known that the service received was not taxable at all then whether the service receiver can avail credit of the service tax paid. Issue arise since department says that service tax credit of the same is not available.

first of all one should know whether it is your input service ?

[Ravi Chopra]

In your case, if you are sure that you have paid service tax in error and it was not leviable of services provided by you, you can get the refund the service tax paid in error from the department.

[Brijesh Verma]

Legally speaking, the department is correct while taking its stand. Rule 3 of the CENVAT Credit Rules 2004 clearly uses the words that a manufacturer or producer of final products or a provider of output services shall be allowed to take credit of the ............. ...... ..... (ix) the service tax leviable under section 66 of the Act. If a legal view is taken in this regard, the amount in question is not any 'SERVICE TAX' that has been paid by you. Rather it is an erroneous cvharge of tax by the services provider. It is therefore, advisable that the receiver of service must lodge a refund cliam in respect of the amount erroneously paid. The refund claim should not be lodged by the service provider as it would be a case of 'Unjust Enrichment'

 

AI Summary

Service tax credit denied where charged on non-taxable services; recipient should seek refund rather than Cenvat credit.
Whether a recipient may take Cenvat Credit for service tax later found not leviable: credit is allowed only for service tax properly leviable on input services; an amount paid where the service was not taxable is an erroneous tax charge and not admissible as credit. The advised remedial mechanism is for the recipient to lodge a refund claim for the amount paid in error rather than treat it as Cenvat Credit; refund by the service provider risks unjust enrichment. Verification of input service status is recommended before action.