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CBEC clears air on input tax credit
May, 06th 2010

The Central Board of Excise and Customs (CBEC) has issued certain clarifications on credit of Central value added tax (Cenvat) paid on input services in a bid to reduce the hassles to tax payers and the litigation arising out of disallowance of such credit by its field formations on the ground.

The CBEC, vide Circular No. 122/03/2010 - ST dated April 30, 2010, has stated that Cenvat credit can be taken by associate enterprises when debit is made in the books of account and actual payment of the value of input service in money terms is not required.

There is no reason for denying such extended meaning to the word payment for availment of credit as section 67 of the Finance Act, 1994 treats such book adjustments, etc as deemed payment, the CBEC has noted.

According to the circular, Rule 4 (7) only provides that the Cenvat credit shall be allowed on or after the date on which payment is made of the value of the input service and of service tax.

The form of payment is not indicated in the same and the rule does not place restriction on payment through debit in the books of accounts.

Therefore, if the service charges as well as the service tax have been paid in any prescribed manner, which is entitled to be called gross amount charged, then credit should be allowed under said rule 4 (7).

Thus, in the case of associate enterprises, credit of service tax can be availed of when the debit is made in the books of accounts as it is considered as payment has been made to the service provider in terms of section 67 (4) (c) of Finance Act, 1994 and the service tax has been paid to the Government Account, the CBEC has stated.

The circular further clarifies that where a service receiver does not pay the full invoice value and the service tax indicated thereon due to some reasons, then in those cases the payment made should be taken as final payment towards the provision of service.

The mere fact that the finally settled amount is less than the amount shown in the invoice does not alter the fact that service charges have been paid and thus the service receiver is entitled to take credit provided he has also paid the amount of service tax, (whether proportionately reduced or the original amount) to the service provider.

The invoice would in fact stand amended to that extent. The credit taken would be equivalent to the amount that is paid as service tax. However, in case of subsequent refund or extra payment of service tax, the credit would be altered accordingly.

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