Service tax on royalty

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Raj Selvamani (Querist)
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09 December 2014 Kindly clarify the below situation.

one the manufacturing company royalty accounted for the year 2013-14. service tax on royalty paid on 31.03.2014. But payment made to the party on December 2014.
Now, Can take cenvat credit of service tax on royalty for the month of December 2014. Is it correct or not.

Neljo Davis ACA

Neljo Davis ACA (Expert)
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09 December 2014 Yes. The assessee can take credit once the amount is paid. Please see the note of Author Mr. V S Datey in this regard.
At present, assessee can take Cenvat credit immediately on receipt of invoice but as per proviso to rule 4(7) of Cenvat Credit Rules, assessee to pay amount equal to Cenvat credit taken if payment is not made within three months (normally termed as ‘reversal of Cenvat credit). Assessee can take back the Cenvat credit after making payment to service provider. It is possible that he may pay to service provider after 6 months of date of invoice. In that case, can he take Cenvat credit/ In my view, once he has taken the Cenvat credit on basis of invoice of service provider, purpose and life of that invoice is over. Later, when he is taking back the Cenvat credit, he is taking Cenvat credit on basis of his payment advise and not on basis of original invoice. Hence, so long as he takes back Cenvat credit within 6 months from date of payment to service provider, he is eligible to take Cenvat credit.

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