Credit in partial reverse charge cases

Please note that as per Rule 4(7) (Enclosed below), the credit can be availed on the day on which the service invoice is received.

Hence, the third proviso states that where credit is initially taken on the basis of the invoice and if the payment of the service and the service tax payable is not made within 3 months, then the credit taken initially has to be reversed.

Therefore, the proviso 3 does not cover situation covered under proviso 2, since in proviso 2 the credit is allowable only when the payment for the value of input service and the service tax paid or payable is paid.

Just for your information, it excludes the situation covered under proviso 1 in the sentence - "except in respect of input service where the whole of the service tax is liable to be paid by the recipient ", which is the case with proviso 2.

Please revert in case this does not clarify.

[(7) The CENVAT credit in respect of input service shall be allowed, on or after the day on which the invoice, bill or, as the case may be, challan referred to in rule 9 is received:

66a [Provided that in respect of input service where whole of the service tax is liable to be paid by the recipient of service, credit shall be allowed after the service tax is paid:

Provided further that in respect of an input service, where the service recipient is liable to pay a part of service tax and the service provider is liable to pay the remaining part, the CENVAT credit in respect of such input service shall be allowed on or after the day on which payment is made of the value of input service and the service tax paid or payable as indicated in invoice, bill or, as the case may be, challan referred to in rule 9:

Provided also that in case the payment of the value of input service and the service tax paid or payable as indicated in the invoice, bill or, as the case may be, challan referred to in rule 9, except in respect of input service where the whole of the service tax is liable to be paid by the recipient of service, is not made within three months of the date of the invoice, bill or, as the case may be, challan, the manufacturer or the service provider who has taken credit on such input service, shall pay an amount equal to the CENVAT credit availed on such input service and in case the said payment is made, the manufacturer or output service provider, as the case may be, shall be entitled to take the credit of the amount equivalent to the CENVAT credit paid earlier subject to the other provisions of these rules:]

Sorry but still not feeling fuzzy

How can we take credit to beginwith?

Even position prior to this was same[in respect of partial reverse charge] , earlier under reverse charge (both full and partial) credit was allowed only after the payment of input service and service tax

2nd proviso is clearly restricting the availment , reversal will come after availing

3rd proviso applies only in case of partial reverse charge

Further I'd like to put forth a Q

Reverse charge [25% by Service provider and 75% by receiver]

Service receiver does not pay to service provider, can service receiver claim credit of 25% portion?

Yours is a valid query.

It is to be observed that a proviso limits the application of the section. Hence the credit in case of partial reverse charge cannot be taken based on an invoice, as it is governed by 2nd Proviso. However, the 3rd proviso did not mention the partial reverse charge, as the credit cannot be taken ab initio based on the invoice. So the question of non-payment within 3 months does not arise.

With regard to your question, if the service receiver does not pay to the service provider, then he cannot take the credit of 25% of the service tax, as the 2nd Proviso states "value of input service and the service tax paid or payable as indicated" and the 25% of the Service tax has to be "indicated" in the invoice.

Please revert if this does not clarify.