service tax availment

Credit of Service Tax on the input services can be availed, only after making payment of the amount indicated in the invoice / bill/challans. This is necessary because, the input service provider will be paying the Service Tax to the Govt. only after he realizes the payment, as the payment of Service Tax is only upon realization.

 service tax credit is on payment basis , so after making the  payment  to the service provider you can take cenvat credit.

kindly clarify -

while settling the contractors' bills, we deduct retention money (10%) of contract value excluding service tax portion, which will be paid to the contractor say after 1 year (completion of defect liability period)., In such cases,  we pass entry to the effect that 100% of contract value plus ST  is debited to expense/capital, 10% kept in a liability account and balance paid to the contractor.  (90% contract value plus 100% service tax)

In such cases can we avail service tax credit for full service tax (eventhough 10%  of contract money is withheld), under the argument that we have settled invoice fully /service tax fully and 10% retention is for a specific purpose, which will be released after 1 year OR

we can avail credit only for 90% of service tax amount and 10% credit can be taken after 1 year only

kindly give your expert opinion 

Since service tax component is paid in full and I assume that contractor being service provider also pays the full service tax amount to the exchequer, you can avail full service tax credit. However, if contractor is not paying full ST but only 90%, you have a problem.

Since you are paying full amount of service tax, and what are you retaining is 10%, excluding service tax, you are eligible to take full credit.

Ok thank you

yes

 can somebody cite any case law regarding availment of service tax on the retention amount

Hi Aswini,

There is no such circular given by department till date.

Yet an unsolved issue. General concept is take the CENVAT Credit only upto the amount paid of Service Tax.

You may refer circular no : 122/03/2010 - ST dated : 30.04.2010.

After introduction of "Cenvat Credit Rules 2011" now it is possible to take cenvat credit on receipt of bill .but if amount is not paid within 90 days then cenvat credit taken needs to be reversed back.

Well Said Suman.

For the period prior to 2011, you can avail cenvat credit of only 90% of service tax amount even though you have paid 100% service tax amount as the cenvat credit can be availed only after making the payment for services and service tax. 

Though you may treat as if 100% service tax amount is paid to the vendor (say 10.30 Rs. @ 10.30%) and 90% amount for services (say 90 Rs.), your contractor may not necessarily/is under no obligation to deposit whole 10.30 Rs. as service tax to the department. He may treat the receipt 10.30+90=100.30Rs. as a gross receipt and may recognise net of service tax as revenue and balance may deposit as service tax by applying cum tax principle. Sol, he will be paying only, and is under obligation to pay only 9.366183 Rs. as service tax to the department and may recognise/can recognise Rs. 90.93382 as his revenue.

Even without going through this accounting, no cenvat credit of service tax paid can be taken unless the payment for BOTH the SERVICE TAX and SERVICE CHARGES/FEES have been made.

For the period after 2011, what has been said above is correct. I am siply copying it from Suman's post: