Availment of CENVAT Credit on Input Services - CBEC Clarifies (and creates fresh confusion)
BOARD received representations regarding denial of CENVAT credit on input services in certain cases. The field formations expressed some doubts with regard to availment of CENVAT Credit on input services in certain instances.
Whether CENVAT credit can be claimed
(a) when payments are made through debit/credit notes and debit/credit entries in books of account or by any other mode as mentioned in section 67 Explanation (c) for transactions between associate enterprises; or
(b) where a service receiver does not pay the full invoice value and the service tax indicated thereon due to some reasons.
Board examined the issues and clarified each of the above mentioned issue as follows:
(a) When the substantive law i.e. section 67 of the Finance Act, 1994 treats such book adjustments etc., as deemed payment, there is no reason for denying such extended meaning to the word ‘payment' for availment of credit. As far as the provisions of Rule 4 (7) are concerned, it only provides that the CENVAT credit shall be allowed, on or after the date on which payment is made of the value of the input service and of service tax. The form of payment is not indicated in the same and the rule does not place restriction on payment through debit in the books of accounts . Therefore, if the service charges as well as the service tax have been paid in any prescribed manner which is entitled to be called ‘gross amount charged' then credit should be allowed under said rule 4 (7). Thus, in the case of “Associate Enterprises”, credit of service tax can be availed of when the payment has been made to the service provider in terms of section 67(4)(c) of Finance Act, 1994 and the service tax has been paid to the Government Account.
(b) In cases where the receiver of service reduces the amount mentioned in the invoice/bill/challan and makes discounted payment, then it should be taken as final payment towards the provision of service. The mere fact that finally settled amount is less than the amount shown in the invoice does not alter the fact that service charges have been paid and thus the service receiver is entitled to take credit provided he has also paid the amount of service tax, (whether proportionately reduced or the original amount) to the service provider . The invoice would in fact stand amended to that extent. The credit taken would be equivalent to the amount that is paid as service tax. However, in case of subsequent refund or extra payment of service tax, the credit would also be altered accordingly.
In the clarification given above, it is mentioned that ‘service tax has been paid to the Government Account'. But there is no such requirement under CENVAT Credit Rules. It is enough if the payment has been made for the value of services along with the service tax. It is not his botheration to ascertain whether service tax has been ultimately paid by the service provider or not. Therefore ‘ service tax is credited to the government' is something new which the Board is perhaps trying to sneak in through a circular.
From tomorrow, Show cause Notices will fly alleging that credit was irregularly taken without ascertaining whether the service tax has been paid to the government account. And how is this to be proved? For each invoice, do you rush to the Central Excise officer with a request to certify that the tax had been paid? And will they give those certificates? And sincere field officers will confirm demands with liberal doses of penalty and interest.
After further clarifications and about six years of litigation, some court will rule that the circular is beyond the legislative jurisdiction of the Board and by that time, many officers will develop a faith that credit cannot be taken unless the service provider has paid the tax to the government account and the Board will get the law amended retrospectively. This is the legal engineering that our bureaucrats excel at.
Circular No. , Dated: April 30, 2010