Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs
New Delhi, dated the 30th April 2010
Circular No. 122/03/2010 – ST
To
The Chief Commissioners of Central Excise and Service Tax (ALL),
The Director General of Service Tax
The Director General of Audit
The Director General of Central Excise Intelligence,
The Commissioners of Service Tax (ALL)
Madam/Sir,
Subject: Clarification regarding availment of credit on input services - reg
Representations have been received by Board regarding denial of CENVAT credit on
input services in certain cases. Some of the cases where doubts have been raised
by field formations are given below:
- As per Rule 4 (7) of the CENVAT Credit Rules, 2004, the CENVAT credit on
input services is available only on or after the day on which payment of the
value of input service and service tax is made. The section 67 (4) of the
Finance Act, 1994, provides that gross amount charged includes payment made by
issue of credit / debit notes or by entries in the books of account, where the
transaction is with any associated enterprise.
A doubt has arisen as to whether CENVAT credit can be taken by “Associate
Enterprises” when debit is made in book of accounts or when book adjustments/
debit or credit in accounts is made, or if the CENVAT credit of the service tax
paid on input service is available only after the actual payment of the value of
input service has been made in money terms.
- As per sub-rule (7) of Rule 4 of the CENVAT Credit Rules, 2004,
“Credit in respect of input service shall be allowed, on or after the day on
which payment is made of the value of input service and the service tax paid or
payable as is indicated in invoice, bill or as the case may be, challan referred
to in Rule 9”.
A doubt raised is as to whether the receiver of input service can take credit
only after the full value that is indicated in the invoice, bill or challan
raised by the service provider, and also the service tax payable thereon, has
been paid. It has been represented that in many cases, after the invoice is
issued by the service provider, the service receiver does not make the full
payment of the invoiced amount on account of discount agreed upon after issuance
of invoice; or deducts certain amount due to unsatisfactory service; or
withholds some amount as security to be held during contract period. Due to
these reasons the value paid may not tally with the amount indicated in the
invoice, bill or challan. In such cases the department has raised objections to
the taking of credit as it does not meet the requirement of the said sub-rule
(7).
- Thus the following issues relating to availment of CENVAT credit need
clarification,-
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.
- Matter has been examined and clarification in respect of each of the above
mentioned issues is as under,-
(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 the 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.
- The contents of this circular may be suitably brought to the notice of the
field formations. In case any difficulty is faced in implementing these
instructions, the same may be brought to the notice of the undersigned.
Yours faithfully
(Himanshu Gupta)
Commissioner (Service Tax)
CBEC, New Delhi
F. No. 137/71/2009 – CX.4