Service Tax - Conflict between CENVAT Credit Rules and POT Rules?
AS per the first proviso to Rule 4(7) of the CENVAT Credit Rules (amended by Notification No. 21/2014 -CENT dated 11.07.2014),
in respect of input service where whole of the service tax is liable to be paid by the recipient of service, credit shall be allowed after the service tax is paid:
As per the first proviso to Rule 7 of the Point of Taxation Rules (amended by Notification No. 13/2014-S.T dated 11.07.2014),
where the payment is not made within a period of three months of the date of invoice, the point of taxation shall be the date immediately following the said period of three months.
Is there a conflict between these two provisions?
In a recent meeting of the RAC in Chennai Central Excise Zone, a clarification was sought,
"In respect of Full Reverse charge, CENVAT Credit can be taken (as per CENVAT Credit Rules), if payment of Service tax is paid by the Service Receiver even if payment to service provider is not made. Whereas in Point of Taxation Rules 7 if Payment is not made (to the Service Provider) with in 3 months of the date of Invoice, the point of taxation shall be the date immediately following the said period of 3 months. If Cenvat Credit can be taken when only service tax is paid but payment to Service provider is not made, point of taxation under amended Rule 7 first proviso does not provide for the same and is not consistent with CC Rule 4(7). Hence point of Taxation shall be date of payment to the Service Provider or Date of Payment of Service Tax whichever is earlier. This may be clarified"
Commissioner, Service Tax informed that both the rules i.e, Point of Taxation Rules, 2011 and CENVAT Credit Rules, 2004 are independent Rules. The Point of Taxation Rules (POTR) and CENVAT Credit Rules operate at different level. The amendment made to the first Proviso to rule 7 of the Point of Taxation Rules (POTR) is intended to specify the point of taxation for reverse charge. This Rule speaks about the rate at which the tax is to be paid, in case an assessee fails to pay service tax within the time prescribed and consequential interest liability if any whereas the CENVAT Credit Rules talk about the time of taking credit. Both these Rules are independent of each other and hence there is no need for amendment in the Point of Taxation Rules. Further, he stated that after determination of exact liability only the question of payment of Service Tax arises.
Commissioner, LTU opined on the issue that the service tax can be paid on the notional value within the time prescribed and thereafter supplementary invoice can be issued after arriving at the exact value of service.
The Chief Commissioner clarified that both the Rules are devised for different situations and independent of each other and has to be reckoned for the specific purposes they are intended to and therefore there is no need to propose amendment in the Point of Taxation Rules, 2011 to make it consistent with Rules 4 (7) of CENVAT Credit Rules, 2004. Chairman also clarified that Rule 7 of the Point of Taxation Rules, 2011 specifies the point of taxation shall be the date immediately following the said period of three months. So it categorically speaks about the point of taxation whereas Rule 4 of the CENVAT Credit Rules, 2004 clearly spells out the conditions including time limit of six months from the date of invoice for allowing CENVAT Credit.