Cenvat credit

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This query is : Resolved

sudesh (Querist)

18 July 2009 Question NO. 1

We had entered into a contract for rendering consultancy job in the year 2006. According to terms of contract, client had paid advance on which we had paid the service tax on proportionate basis in the same year. The job was kept in abeyance till March, 2009. In April, 2009, the Client have unilaterally decided to conclude the contract and demanded refund of Advance amount. We, the Consultant, refunded the entire amount of advance.

Now, kindly give your expert opinion on the following:

Since we had paid service tax on the advance amount, can we get back the service tax amount from Service Tax Department even after elapse of more than two year from the date of payment of service tax.

Question NO. 2

We have entered into a contract for carrying out works contract job. The elements include Design engineering, civil construction, supply of plant & equipment, erection, commissioning etc. Our total liability of service tax on account of Design Engineering, civil construction, Erection, commissioning, etc. is double the amount of service tax provided in the contract. Our client stops releasing payment of service tax when it reaches ceiling amount provided in the contract. However, they enjoy the benefit of CENVAT credit.

The accounting system of our client is that they admit the basic price plus service tax amount and deduct the service tax amount from the payment on the pretext that the ceiling provided in the contract has crossed but take the advantage of CENVAT Credit because they admitted the service tax amount.

As per provision of CENVAT rule, if one does not pay the amount of service tax to the service provider then one can not take the benefit of CENVAT credit on account of Service Tax.

Kindly give your expert opinion.