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Acounting for Cenvat

Venkatanarayana GM , Last updated: 12 October 2012  


Accounting under service tax is one of the important aspects for the assesses in the organization. In this article we would like to highlight some important basic accounting entries with regard to service tax. So that, the organization is able to match  the financial figures with the service tax returns. We would also explaining basic accounting entries with cenvat bills.

1) Contents of the invoices:

The  need for raising an invoice  under service tax law arises under Rule 4A of service tax rules, 1944. As per Rule 4A “Every person providing taxable services  shall have to raise an invoice within 30 days of completion of service or payment received towards providing of such taxable service.”

The invoice should contain the following details:

a) The Name, Address, and the Registration number of such person

b) The Name,  Address, of the Person receiving taxable service

c) Description and value of taxable service provided or agreed to be provided

d) The service tax payable thereon should be calculated

2) Accounting of an invoice raised on vendors:

Vendor  A/c..(Name of the vendor) Dr

To Service A/c (Name of the service))

To Service tax payable A/c

To Higher education cess A/c

To Secondary higher education cess A/c

After raising an invoice, There are 3 situations under which  separate accounting entries arises with nature of receipts.

a) Situation 1: Amount fully received from the vendor

Bank A/c …… Dr

To Vendor A/c

To TDS Receivable A/c (if he deducted)

b) Situation 2: Amount partly received

Bank A/c……. Dr

To Vendor A/c

To TDS Receivable A/c

c) Situation 3: Amount not received fully

Bad debts A/c ….. Dr

To Vendor A/c

(Note: In situation 1 & 2 there is no relief to the service provider to claim adjustment/ refund of the service tax already paid by him but not received from the service receiver. This amount cannot be claimed back due to the reason that as per section 6(3) of the service tax rules, 1994 service has already been provided, as per section rule 6(4A)/(4B) it is not a case of excess payment. The point of taxation is also occurred and service tax is also paid. Therefore it becomes a burden on the service provider.)

In case of Excise or VAT, actual realization of sales proceed is not relevant for payment of excise duty / VAT and it is the same for service tax too. 

So beware while providing service and issuing invoice.  If the service receiver is not going to pay you the bill, the loss is not only limited to the billed amount, but the service tax already paid in this regard would also have to be foregone. 

3) Accounting for cenvat bills

A manufacturer or producer of final products or a provider of output service shall be allowed to take credit.

The basic conditions to be satisfied for availing cenvat credit are as follows:

Rule 4 imposes conditions for availing CENVAT credit.  The CENVAT Credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service.   In respect of final products namely, article of jewellery, falling under 7113 of the First schedule to the Excise Tariff Act, the CENVAT credit of duty paid on inputs may be taken immediately on receipt of such inputs in the registered premises of the person who get such final products manufactured on his behalf, on job work basis, subject to the condition that the inputs are used in the manufacture of such final product by the job worker.

The CENVAT credit shall be allowed even if any input or capital goods ‘as such removal’ or after being partially processed are sent to a job worker for further processing, testing, repair, re-condition or for the manufacture of immediate goods necessary for the manufacture of final product or any other purpose. Only if it is established from the records, challans or memos or any other document produced by the manufacturer or provider of output service taking the CENVAT credit that the goods are received back in the factory within one hundred and eighty days of their being sent to a job worker.If the inputs are not received back within one hundred and eight days the manufacturer or provider of output service shall pay an equivalent to the CENVAT credit attributable to the inputs by debiting the CENVAT credit or otherwise, but the manufacturer or provider of output service can take the CENVAT credit again when the inputs or capital goods are received back in his factory or in the premises of output service provider.

 Rule 7A provides that a provider of output service shall be allowed to take credit on inputs on the basis of an invoice or a bill or a challan issued by an office or premises of the said provider of output service.The  invoice issued shall be  in terms of the provisions of Cenvat Credit Rules 2002, towards the purchase of inputs.

It is  provided that the Deputy Commissioner of Central Excise or the Asst. Commissioner of Central Excise, as the case may be, having jurisdiction over the factory of a manufacturer of the final products may, in exceptional circumstances having regard to the nature of the goods and shortage of storage space at the premises of such manufacturer, by an order, permit such manufacturer to store the input in respect of which CENVAT credit has been taken, outside such factory, subject to such limitation and conditions as he may specify.Where such input is not used in the manner specified in the rules for any reason whatsoever, the manufacturer of final products shall pay an amount equal to the credit availed in respect of such input.

Rule (9) (4) provides that the CENVAT credit in respect of input purchased from a first stage dealer or second stage dealer shall be allowed only if such first stage dealer or second stage dealer, as the case may be, has maintained records indicating the fact that the input was supplied from the stock on which the duty was paid by the producer of such input and only an amount of such duty on pro rata basis has been indicated in the invoice issued by him.

Accounting Entries for booking cenvat

Goods A/c …… Dr

Cenvat receivable A/c

Education cess A/c

SHE Cess A/c……… to

Vendor A/c

(Note; if in case goods returned to the vendor , reverse the above entry)

Adjustment Accounting entry for utilizing cenvat credit

Service tax payable A/c……. Dr

To Cenvat receivable A/c……

To Cash A/c……….

(Note: If sufficient cenvat credit exists in the books then question of payment by cash doesn`t arise)

Finally, it is advisable to all the assessee`s to ensure their financial figures is matching with the returns figures as that is the important document for the department officials during the time of adjudication.

Readers any quires may write to author @ venakt@hiregange.comIntroduction:

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Published by

Venkatanarayana GM
(Partner associate at Hiregange & Associates)
Category Service Tax   Report

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