Service Tax Credit only after payment (by book adjustment)

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Sameer

141 Points Posted on 09 November 2009

Dear Members,

Company "X" gets Job work done from Company "Y" and the Company "Y" (ob worker) charnges Service Tax on Job work charges. Company "X" also sells material to Company "Y". Now Company "X" has to pay to Company Y" on a/c of job work charges and on the other hand Company "X" also has to recover amount against the sales made to company "Y".
(Sale are being separate transaction)

Company X" instead of making payment to "Y" (on a/c of job work charges) adjust the amount payable towards the same agaisnt sales made to the Job worker.

WHETHER ADJUSTMENT OF SUCH NATURE WILL AMOUNT TO PAYMENT MADE AS PER SERVICE TAX RULES.

WHETHER COMPANY "X" IS ELIGIBLE TO TAKE CREDIT OF SERVICE ON THE JOBWORK CHARGES AFTER SUCH ADJUSTMENT.

PLEASE CLARIFY THE ABOVE IN THE LIGHT OF RULE 4 (7) OF CENVAT CREDIT RULES, 2004

Request - please support your reply with some departmental clarfication i.e. circular etc. or any case law in this regard.

Regards
Sameer

Replies (2)

Gautam Joshi

Partner

309 Points Posted on 09 November 2009

Hi Sameer,

Good question first.

CENVAT Credit Rules, 2004 is to be interpreted liberally and not word to word. Rule 4(7) requires payment to be made and no where clarifies how it is to be paid. Even if it is "paid" by way of an exchange, the purpose of cascading effect will not be violated anyhow. Credit should be taken.

Please have a WRITTEN opinion on this from any Professional consultant.

Warm Regards.

Sameer

141 Points Posted on 09 November 2009

Joshi Ji,

Thanks for your reply..

On the face of transaction no body can deny that it is payment.
I am also confident that if we go for litigation we will 100 % win the case.

but............ it is seen that department go on for litigation by interpreting the law/rules in their way.

Hence I request you to please provide some departmental circular/clarification or any case law in this regard.

Regards
Sameer