Service tax

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Querist : Anonymous

Querist : Anonymous (Querist)

23 May 2013 Reverse charges of Service will adjusted with CENVAT credit OR it will full expenses .

please help

CA CS SUMEET BANSAL

CA CS SUMEET BANSAL (Expert)
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23 May 2013 Service tax under reverse charge can not be adjusted with CENVAT Credit.

It has to be paid through GAR7
and we can take cenvat crdit of the same on the basis of GAR7

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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23 May 2013 Where Service tax is payable under Reverse Charge Mechanism, it is to be paid by Cash only. Thus benefit of Cenvat credit cannot be availed of in such a case.

But any Service Recipient so liable to pay service tax in the above scheme can claim Cenvat credit of such tax paid by him and utilize the credit against

* Central Excise duty payable on manufacture of final goods OR

* Service Tax payable by him on any output service

on the basis of copy of GAR 7 challan.

Querist : Anonymous

Querist : Anonymous (Querist)

23 May 2013 Thanks for your reply.

but there is one more doubt,

If we have some legal fee received from a individual advocate of Rs 1000/- and as per reverse charge mechanism we have to libale service tax for that of rs 123.60, can we adjust the the amount of Rs 123.60 with other service tax libility.

Regards
Anirudh

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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24 July 2025 Hi Anirudh, this is a great and important question — let’s break it down clearly and concisely.

✅ Query: Can service tax payable under Reverse Charge Mechanism (RCM) (e.g., legal fee from individual advocate) be adjusted using CENVAT credit?
🔹 Step-by-step answer:
🔸 1. Can reverse charge liability be paid using CENVAT credit?
❌ No, as per Rule 8(1) of Service Tax Rules, 1994, RCM liability must be paid in cash, i.e., via GAR-7 challan through internet banking or designated bank branches.

🔸 2. Can CENVAT credit be claimed after payment?
✅ Yes, once you have paid the RCM liability in cash, you can claim CENVAT credit of that amount, subject to the conditions under the CENVAT Credit Rules, 2004.

💡 Example:
You receive legal service from an individual advocate.

Bill amount = ₹1,000

RCM service tax (12.36%) = ₹123.60

You pay ₹123.60 to the govt in cash (GAR-7).

You can then take CENVAT credit of ₹123.60, which can be:

Used to pay central excise duty, OR

Used to offset service tax on your output services.

🔸 3. Can you adjust the ₹123.60 RCM liability against other ST credits?
❌ No, you cannot adjust or set off RCM liability using CENVAT credit at the time of paying it.

But once paid, it becomes your eligible input credit.

🔹 Summary:
Item Allowed?
Use CENVAT credit to pay RCM? ❌ No
Pay RCM in cash (GAR-7)? ✅ Yes
Claim credit after RCM payment? ✅ Yes
Use that credit for output ST/duty? ✅ Yes

🧾 Reference:
Rule 2(l) & Rule 3 of CENVAT Credit Rules, 2004

CBEC Education Guide (2012) – Section on Reverse Charge

Rule 6(2) of Service Tax Rules, 1994

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