Use service tax paid under reverse charge as tax credit
Querist : Anonymous
Our company is liable to pay service tax under reverse charge mechanism on GTA. I want to know can a company use such service tax paid as tax credit with other tax credits like telephone expenses, internet expenses, courier expenses etc to deduct from the service tax which company liable to pay as service provider ?
Querist : Anonymous
Querist : Anonymous
---
### Can Service Tax Paid under RCM be used as Input Credit?
**Yes**, a company (service recipient) paying service tax under Reverse Charge Mechanism (RCM) on services like GTA (Goods Transport Agency) can avail **CENVAT credit** on such service tax paid, and **use this credit to set off against its output service tax liability** (e.g., on telephone, internet, courier services).
---
### Relevant Provision:
* **Rule 4(7) of Cenvat Credit Rules, 2004** states:
> “The person liable to pay service tax on reverse charge basis shall be entitled to take credit of such service tax paid, subject to the condition that he has made payment of the value of such services to the provider and the service tax paid on such services.”
This means:
* The service recipient who is liable to pay service tax on reverse charge basis can take credit of such tax paid.
* However, the credit can be taken only after **payment is made to the service provider** for the input service.
---
### Important Notes:
* This credit can be used **to pay output service tax liability** on other services provided by the company (like telephone, internet, courier, etc.).
* This credit cannot be used against central excise duty on goods; it’s only for service tax liabilities.
* The payment to the service provider should be made (even if service tax is paid under RCM).
---
### Official Reference / Link:
You can refer to the **Cenvat Credit Rules, 2004** here for Rule 4(7):
[Central Board of Excise and Customs (CBEC) - CENVAT Credit Rules](https://cbic-gst.gov.in/resources//htdocs-cbec/excise/cenvat-ccr-rules.pdf)
---
### Summary:
| Point | Explanation |
| ------------------------------ | ------------------------------------------------- |
| Is RCM service tax creditable? | Yes, under Rule 4(7) of Cenvat Credit Rules. |
| Condition | Payment for service value made to provider. |
| Usage | Set-off against output service tax liability. |
| Applies to | Services under RCM e.g., GTA, legal services etc. |
---
If you want, I can help draft an explanation note for your internal team or tax consultant!
Click here to login now
Similar Resolved Queries
- ITR 3 VALIDATION
- Brokage income from sale and purchase of property
- EPF withdrawal before 5 years and Disclosure in ITR-2
- Clarification on ITR 3: Is Sl. No. 64 required for 44ADA income?
- Investment guidance for NRI
- Journal entry closing books of accounts of Individual and HUF
- Tax Audit due date of FY 2024-25
- How to show P2P lending income (IndiaP2P, Mobikwik Xtra etc.) in ITR-3?
- R3B Return- some info about 4.D.(2)
- RCM on repair and maintenance
- INTEREST ON SB ACC INCOME TAX
- ITC Utilization on vehicle repair
- Transfer of partnership interest in LLP
- Accounting entry for instalment payments and gst obigations
- Purchase of Time Deposit in AIS
- "Please ensure that the Total of the Deductions u/s 54F match the same in Table D in Sch CG"
- Composition Dealer GST Annual Return Filing process
- Stamp Duty & Registration Fees on Sale Deed
- GST on Restaurant service
- Revision under Section 264 in The Income Tax Act, 1961
Trending Online Classes
-
Input Tax Credit, GST refunds and Recovery of refunds- Roadblocks and way outs
CA Nipun Arora03 September 2025 -
GST LIVE Certification Course - 43rd Weekdays Batch(With Govt Certificate)
Industry Expert15 September 2025
CAclubindia
