Reversal of cenvat credit

XYZ has paid Service Tax under reverse charge mechanism towards import of services and has taken the credit after making the payment to Government. However, it has not paid to the vendor within 3 months of receipt of invoice.

Is XYZ supposed to reverse the credit taken (after payment of tax to service tax authorities). Kindly share the relevant provisions for it.

Replies (3)

The importer is sured that make the payment after 3 months then no need to reverse the service tax paid under reverse charge system.

Since the services are received from Group Concern, payment for invoices will be done depending upon the requirement of other entity.

I don't think XYZ needs to reverse cenvat input availed under RCM since it is allowed only after payment of liability to Govt. You have already disposed off your liabilty under RCM. In my opinion CCR 4(7) and proviso talk about reversing the input on those invoices in which the provider is required to deposit the tax.

The logic behind this rule is that you have already claimed input on invoice. When you dont make the payment to the vendor within 3 months, the Govt remains deprived of the tax on which you have claimed input. Thus, it requires those input to be reversed if invoice is unpaid for 3 months.

Hope this helps.

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