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Introduction:

Budget, 2014 is said to be the first step of Modi Government towards “Achhe din”. However, to the Central Excise and service tax assessees it has come up with mixed feelings. It has fulfilled few desires by bridging certain lacunas, while some still exists despite fact that the same set of provision has been amended keeping intact that lacuna. One such amendment has been made in the rule 6(8) of the Cenvat Credit Rules, 2004 which has been discussed herein.

The past:  

Sub-rule 8 was inserted in Rule 6 of the CENVAT Credit Rules, 2004 by Notification No. 28/2012-CE NT dated 20.06.2012. This rule reads as follows:-

(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. [emphasis supplied]

The funny effect of this rule was that the export of service was not treated as exempted service if the payment in foreign exchange has not been received within six months. This means where the payment for export of service is not received within prescribed period, it will not be treated as exempted service and thus, provisions of rule 6 of Cenvat Credit Rules, 2004 are not applicable. However, if such payment is received within due time, the service will be treated as exempted service and provisions of rule 6(3) will be applicable. It is but obvious that this would not have been the intention of the law makers but the framing of rule speaks this only. The intention of law makers would have been that if the payment is not received within 6 months then it shall be treated as exempted service and the service provider will have to reverse the cenvat of input services used in provision of such export of service. But the language of rule 6(8) came out to be defective and since last two years it is the same and waiting for suitable amendment.

Amendment in rule 6(8) by Budget, 2014

The amendment sought by clause (b) of rule 6(8) is still awaited. However, in this budget, the government has added a clause (c) to rule 6(8) which only to give rise to more confusion instead of resolving the earlier confusions. The new clause reads as follows:

“Provided that if such payment is received after the specified or extended period allowed by the Reserve Bank of India but within one year from such period, the service provider shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier in terms of sub rule (3) to the extent it relates to such payment, on the basis of documentary evidence of the payment so received.”.

This new proviso states that where the service provider has earlier made reversal under rule 6(3) of the Cenvat Credit Rules, 2004 on account of non receipt of convertible foreign exchange within specified period and thereafter such payment is received, the service provider would be entitled to avail the credit of amount reversed/paid under rule 6(3) on the basis of Bank Realisation Certificate.

Impact of amendment:-

While inserting the new clause (c), the lacuna existing in rule 6(8)(b) has not been touched. According to the existing language of rule 6(8), if the payment is not received within specified period, the service shall not be treated as exempted service and accordingly no reversal will be required under rule 6(3) of the Cenvat Credit Rules, 2004. However, if the payment is received within specified period, it will come under purview of rule 6(3). The insertion of clause (c) has been done by ignoring the existing language of rule 6(8)(b); the intention of law makers have been kept in mind. In fact, as per existing language, the clause (c) will not at all come into play and there would be no need of recredit since the timely receipt of foreign exchange will lead to reversal under rule 6(3) and non receipt of foreign exchange in due time will take the service out of purview of rule 6(3) and thus, no reversal will be required under rule 6(3) of Cenvat Credit Rules, 2004.

While departing:

The exercise made by government in issuing the notification for inserting clause (c) in the rule 6(8) is worthless. There was no need of inserting clause (c) till the lacuna is there in the clause (b) of this rule. Insertion of clause (c) facilitates the assessees to avail such reversed Cenvat which in actual was never reversed. It is as if treating the patient of malaria with the medicine meant for typhoid. Also, the lacuna in clause (b) was not noticed by most of the people but this amendment may bring this lacuna in the eyes of people, including the departmental officers too. Thus, the two year old lacuna may now prove harmful to the health of service providers exporting their services and duly receiving the convertible foreign exchange in prescribed time.

An article by:

CA. Pradeep Jain

CA. Preeti Parihar

CA. Vaibhav Bothra


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