Confusion surrounding Rule 6(8) of CENVAT Credit Rules 2004 haunts tax payers
IN colloquial English, we often hear double negatives like "You don't get nothing", or "I did not kill nobody". It seems Rule 6(8) of the CENVAT Credit Rules, 2004 is suffering from such "double negative effect".
Ever since we carried the possible error in Rule 6(8) in DDT 1897, we are getting mails from heads of indirect taxes of cross section of industry with different views on the subject matter, proving at least one thing. There is utter confusion prevailing on the issue.
Before going into the details, it will be useful to read the sub-rule 8 of Rule 6 of the CENVAT Credit Rules, 2004 in its present form.
(8) For the purpose of this rule, a service provided or agreed to be provided shall not be an exempted service when:-
(a) the service satisfies the conditions specified under rule 6A of the Service Tax Rules, 1994 and the payment for the service is to be received in convertible foreign currency; and
(b) such payment has not been received for a period of six months or such extended period as maybe allowed from time-to-time by the Reserve Bank of India, from the date of provision.
It is quite common practice to keep exports out of the scope of mischief of Rule 6. For goods, it is clearly mentioned that the provisions of Rule 6 are not applicable ( Ref: Rule 6(v)).
For services, as per Rule 2(e) of the CENVAT Credit Rules, "exempted service shall not include a service which is exported in terms of Rule 6A of the Service Tax Rules, 1994".
It is worth noting that Rule 6A of Service Tax Rules, 1994 does not stipulate that the payment for the service shall be received within six months from the date of provision of the service.
So, even if the payment is not received within six months, export of services would be outside the purview of Rule 6 of the CENVAT Credit Rules, 2004, by virtue of the definition of exempted service and there would be no necessity to insert any sub-rule like 6(8) in the CENVAT Credit Rules.
But, apparently the Government wanted to exclude the exports from the purview of Rule 6 with some conditions linked to receipt of payment for the export. If the payment is not received within six months or such extended period, may be the credit on the input services used for export of services needs to be reversed. This view is also fortified by the Power Point Presentation made by the JS(TRU). Relevant slide reads as under:
If payment not received in 6 months…
- Service will remain non-taxable, being provided in a non-taxable territory - … but input tax credits will need to be reversed
- But if payment received before the period allowed it will comprise exports
So, if the exports are to be kept outside the purview of Rule 6 only if the payment is received within six months or such extended period from the date of provision of service, the sub-rule 6(8) should be worded in the following manner:
(8) For the purpose of this rule, in case of export of services, a service provided or agreed to be provided shall not be an exempted service only when:-
(a) the service satisfies the conditions specified under rule 6A of the Service Tax Rules, 1994 and the payment for the service is to be received in convertible foreign currency; and
(b) such payment has been received for a period of six months or such extended period as maybe allowed from time-to-time by the Reserve Bank of India, from the date of provision.
Unless some immediate clarification / amendment is made, the double negative is going to create a lot confusion among the stakeholders. At least one Head of Indirect Tax of a big company interprets Rule 6(8) in its present form to mean, "The assessee has to make payment as per Rule 6 if the exports proceeds are not received within the stipulated time or extended time and once the foreign exchange payment is received, the amount paid under Rule 6 can be taken as refund".
Will TRU clarify?