Service Tax – No provision for supplementary invoices and so no Credit?
Somebody who was required to pay Service Tax did not pay it.
1. Later he comes to know that he is required to pay the tax and pays the tax.
2. The department issues a notice to him alleging all vices including suppression.
Is his client who is a duty paying manufacturer eligible for cenvat credit?
As per Rule 9(1) (b) of the Cenvat Credit Rules, one of the documents for taking credit is
(b) a supplementary invoice, issued by a manufacturer or importer of inputs or capital goods in terms of the provisions of Central Excise Rules, 2002 from his factory or depot or from the premises of the consignment agent of the said manufacturer or importer or from any other premises from where the goods are sold by, or on behalf of, the said manufacturer or importer, in case additional amount of excise duties or additional duty leviable under section 3 of the Customs Tariff Act, has been paid, except where the additional amount of duty became recoverable from the manufacturer or importer of inputs or capital goods on account of any non-levy or short-levy by reason of fraud, collusion or any wilful misstatement or suppression of facts or contravention of any provisions of the Excise Act, or of the Customs Act, 1962 (52 of 1962) or the rules made there under with intent to evade payment of duty.
So a supplementary invoice is issued by a manufacturer and if he paid the additional duty because of fraud, suppression etc, no credit is allowed.
But this fraud restriction is not applicable to Service Tax and there is no supplementary invoice on Service Tax. Then is the Service Tax credit available?
The other day I had a long discussion on this topic with our expert, Santosh Hatwar when he called on me. In continuation of our discussion, he sent me this mail.
In Sec 11A of the Central Excise Act, 1944, sub-section 2B was introduced for voluntary payments of duties short paid, not paid etc by a manufacturer with interest (payment of interest is debatable in lieu of the phrase "but for" in the Explanation 2 thereof as well as in Sec 11AB) and in lieu of such voluntary payment the assessee is granted immunity from issuance of any show cause notice.
In Finance Act, 1994, Section 73 is parimateria with Sec 11A of CEA 1944. Section 73 (3) provides for such voluntary payments of service tax short paid or not paid etc by service providers (of course with interest and the usual "but for" phrase appended therein).
However, neither Rule 4A of the Service Tax Rules 1994 which deals with issue of invoice by service provider nor Rule 9 (1) (b) of Cenvat Credit Rules 2004 is amended to provide for issue of supplementary invoices by the service providers to pass on such additional taxes which were hitherto not paid or short paid by them. In the absence of such provisions, the service providers are at a loss to pass on such excess payments by them to the recipients who can take cenvat credit of such service tax paid.
Of course such supplementary invoices are ineligible for availing cenvat credit if the payments arise on account of fraud, collusion etc with intention to evade tax. However in other cases, though the service providers are eligible to pass on such excess payments of taxes, in the absence of suitable provisions in Service Tax Rules 1994 as well as Cenvat Credit Rules 2004 they are at a disadvantage. In the absence of such provisions related supplementary invoices, the service providers will not be able to recover such payments from the service recipients.
I hope this brief will grab the immediate attention of the authorities and bring out suitable amendments in the relevant provisions which shall benefit the service providers.