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Availment of Cenvat Credit on Input Service Bills

Vijay Bhatti (Senior Manager - F&A) (32 Points)

21 November 2009

Request guidance on Statutory provisions under Service Tax Act on

1) Can proportionate Cenvat Credit of Service Tax on Input Service vendor Invoice which are paid for partly be taken or not ? e.g. Vendor Invoice is Rs. 100 Basic +10.30 Service Tax total 110.30. Service tax is accounted as Receivable in this case as this is input service in Nov'09. Part payment of Rs. 50 is made to the vendor in Nov'09. Balance payment will be made in the month of Jan'10. can Proportionate Cenvat Credit of Rs. 5.15 of Service Tax be taken in Nov'09 towards part payment of Rs. 50 to the vendor ?

2) Will the decision be different in case a) vendor is Third party 2) vendor falls within Associated Enterprice i.e. Group company. ?

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11 Replies

CA Amit Kanani (Practicing CA) (338 Points)
Replied 23 November 2009

Yes u can definitely take cenvat credit For Rs.5.15 after paying Rs.50+ST.

In case of Input services Cenvat credit SHALL availed as soon as payment is made for that and even when part payment is made Cenvat credit availed , accordingly as per rule 4(1) of Cenvat Credit Rules,2004 and it will not make any difference even if Input servicer are procured from Associated enterprise. Surely, this is true

k.rajprashanth (ariticals) (30 Points)
Replied 26 November 2009

yes u can avail

Y.N.Vinod (Consultant - Risk Advisory Services) (98 Points)
Replied 27 November 2009

yes,service tax can be claimed in this case.

BeyondConsultants (CA/CS/LLB(DU)) (184 Points)
Replied 10 December 2009

Kids don’t open your mouth unless you are sure.Keep Ajay Jain and Deepak Gupta notes for CA Final Exams only.

Vijay- No Credit is available till the time you make full payment to your vendor as per Rule 4(7) of the CENVAT Credit Rules, 2004. In case of associated enterprise though liability arises on accrual basis but no corresponding change has been introduced in Rule 4(7) so wait till you finally settle account with the Vendor.

Madhukar N Hiregange (Chartered Accountant) (39034 Points)
Replied 11 December 2009

Rule 4(7) states that credit can be availed when the payment is made. The reasonable construction would be that to the extent ( proportionate) payment is made it would be available. Otherwise it would lead to a number of unintended hardships and the very purpose of the scheme to avaoid cascading effect would nto be served.

This procedure is being followed now for 5 years and there is no dispute from the department in this regard.

Therefore I am of the firm view that the credit of input services is available on payment proportinately.

BeyondConsultants (CA/CS/LLB(DU)) (184 Points)
Replied 11 December 2009

Principle of interpretation by convenience is not applicable where the wording and intention of law is very clear.

Rule 4(7)

So unless u pay tax and value indicated on invoice, no credit is available.

The CENVAT credit in respect of input service shall be allowed, on or after the day whichpayment is made of the value of input service and the service tax paid or payable as is indicated in invoice, bill or, as the case may be, challan referred to in rule 9.

vivek (Auditor) (61 Points)
Replied 15 February 2011

Whether availment of Cenvat on service tax is manadatory.

Or is the cenvat on service tax book as expenses in P/L

Plz answer this question

CA Unnikrishnan Nair N (Chartered Accountant) (2083 Points)
Replied 15 February 2011

The issue seems to be litigation prone . It ,therefore, is advisable to take the credit after payment is effected in full.If the service provider belongs to group company, for payment of tax , date of bills is the criteria and not date of payment. This makes no difference as far as your question on cenvat credit is concerned.

CA Vibhash Kumar Sah (Associate Manager) (700 Points)
Replied 06 June 2011

In my Organisation also, the view was same that "No input Credit can be availed unless we make full payment to the Vendor of the amount mentioned on the Invoices" . I had great threadbare with my seniors. Finally , It has been accepted that the proportionate Input Credit is allowed on part payment to Vendor. The view of Proportionate Credit is also acceptable to Department. Still if somebody feels that Proportionate Input Credit is not as per the provision of the Act, I will suggest few ways: 1. while making the part payment clearly mention to your Vendor that part payament include full amount of Service Tax & Cess. or 2. Tell your vendor to raise bills in parts, i.e., One bill for current payment & other(s) for the amount to br paid later on etc.