Rule 4 of the CENVAT Credit Rules, 2004 (“CCR”) provides the conditions for availment of credit. Amendment rules inserted a new proviso after the second proviso in Rule 4(1). The new proviso shall be inserted with effect from first day of September, 2014. The proviso has been reproduced as under:
“Provided also that the manufacturer or the provider of output service shall not take CENVAT credit after six months of the date of issue of any of the documents specified in sub- rule (1) of rule 9.”
Thus, now there is a restriction introduced under the CCR that credit of the duty paid in inputs or input services should be availed with 6 months from the date of relevant document specified in Rule 9(1) of the CCR.
In Rule 4(7), as we know, there is a proviso clause that in case the payment of the value of input service and the service tax thereon is not made within 3 months from the date of the invoice (“or any relevant document as per Rule 9(1)”) the manufacturer of Service provider who has taken credit of such input service shall pay an amount equal to the Cenvat credit taken on such input service. Now, Rule 4(7) has been amended to make it clear that after the lapse of 6 months Credit cannot be claimed.
Now in a case where the payment to the service provider is not made within 3 months from the date of invoice, then the CENVAT credit so taken by the Service recipient has to be reversed. The credit of input tax amount can be taken by the service recipient once the payment has been made. There was no time limit on such re-credit. But now, since after the amendment no credit can be taken after six month from the date of invoice the re-credit cannot be taken. Further, there is no specific mention that the restriction clause of 6 months is only for the availment of first credit and the restriction does not covers re-credit availment.
Assume a case, where the assessee receives the service provider's invoice on October 31, 20X4 which is dated October 01, 20X4. As per the amended Rule 4(1) the assessee can claim the input service tax till March 31, 20X5. Suppose he claims the credit on October 31st itself. Now, as per Rule 4(7) the assessee shall be required to make payment by December 31, 20X4. In case the assessee fails to make the payment to service provider, he shall be required to reverse the credit of input service tax so taken. Now, there can be two cases, the assessee might make the payment before the elapse of 6 months from the date of invoice (i.e. before March 31, 20X5) or he makes the payment after 6 months from the date of invoice (i.e. after March 31, 20X5).
CASE I: The assessee makes the payment before 6 months from the date of invoice (i.e. before March 31, 20X5)
In this case the assessee shall enjoy the benefit of availing the input tax credit as six months have not elapsed from the date of invoice.
CASE II: The assessee the payment after 6 months from the date of invoice (i.e. after March 31, 20X5)
In this case since as per Rule 4(1) the last date of availing the Input credit being March 31, 20X5 the assessee shall not be able to claim the input tax.
Therefore, we see that the benefit of 3 months time frame for payment of the value of the input service, vis-à-vis availment of CENVAT credit, would be subject to the overall limit of 6 months fixed for availment of credit by the new amendment.
Further, if any assessee fails to discharge the tax liability in the past and the assessee discharges the same after receiving a notice from the department he shall not be eligible to claim the input tax credit as the specified time limit of 6 months would have already lapsed.
Since the introduction of the CENVAT credit procedure over many years, there has never been prescribed a time limit for availing CENVAT Credit. This restriction is also unreasonable to the extent that authorities are entitled to adjudicate tax shortfalls and demands for the past five years in most cases.
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