Servicde tax for Transactions with Sister Concerns

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Karnkumar Shukla (Querist)
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14 December 2009 Now, as we know that Service tax collected from Sister Concerns should be taken on Accrual basis. But when we take Cenvat Credit on payment made to sister concerns, we take it on Accrual basis or as per Payment basis? Pls advice.
Thank You.

Kishanlal Paliwal

Kishanlal Paliwal (Expert)
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15 December 2009 The Service receiver is entiteled to take CENVAT only on payment basis.

For the Service provider, the liability to pay service tax accrue immediately while services being delivered.

Regards

Guest

Guest (Expert)

08 April 2010 Could you please provide me relevant documents?

Awaiting your reply.

Guest

Guest (Expert)

08 April 2010 Awaiting your reply.

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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23 July 2025 You're absolutely right to notice the distinction between **service tax liability** and **CENVAT credit eligibility**, especially in the case of **transactions between sister concerns**.

Here's a clear breakdown for your understanding:

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### 🔹 **Service Tax Liability (Service Provider – Sister Concern)**

* **Basis**: **Accrual basis** (i.e., earliest of invoice or completion of service).
* This is in accordance with **Point of Taxation Rules, 2011** (or earlier under Rule 6 of Service Tax Rules), which specify that **service tax becomes payable when the service is provided or invoice is issued**, whichever is earlier (except in specific cases).

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### 🔹 **CENVAT Credit Eligibility (Service Receiver – Sister Concern)**

* **Basis**: **Payment basis** (not accrual).

* As per **Rule 4(7) of CENVAT Credit Rules, 2004**:

* CENVAT Credit on **input services** can be taken **only after**:

* Receipt of input service **and**
* **Payment** is made to the service provider (including service tax component).

* There’s also a **3-month rule** (post July 2012 amendment): If payment is not made within 3 months from the date of invoice, the **availed credit must be reversed**, and can be **reclaimed on actual payment**.

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### 🔁 Summary – Sister Concern Transactions

| Particular | Basis |
| --------------------------------------------------------- | ------------------------------------------------------------ |
| **Service Tax Payable by Provider (your sister concern)** | **Accrual** |
| **CENVAT Credit Available to Receiver (you)** | **Payment Basis** (after invoice + payment of value and tax) |

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### ⚠️ Note:

Transactions between **related parties** (like sister concerns) are still considered **taxable services** under the law, and these rules apply even if consolidated group accounting is maintained.

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If you're filing returns for these transactions, ensure that:

* **Your sister concern pays tax based on accrual**;
* **You (the receiver) claim CENVAT only after actual payment**, and track the 3-month window to avoid reversal.

Let me know if you need a **sample accounting entry or journal template** for both parties.

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