Pursuant to the budget amendments, the providers of taxable services and manufacturers of excisable goods would be required to take Cenvat credit on inputs and input services within a period of six months from the date of relevant document.
Although this change is effective from 1 September 2014, there are various issues even for the transition period (i.e. where Cenvat credit is taken on or after 1 September with respect to invoices etc. issued earlier) which need attention of the taxpayers.
Though, one can argue that these amendments are applicable to documents issued on or after 1 September 2014 (i.e. prospective), another interpretation that the ‘law applicable’ for taking Cenvat credit should be law as on the date of taking of credit is equally forceful.
Notwithstanding any interpretation, it is almost certain that the Department would disallow any Cenvat credit taken on the basis of 6 months old invoices post 1 September 2014.
Thus, at this transition phase, it is advisable that in order to avoid litigation,a practical and cautionary approach should be employed by the taxpayers. Wherever possible, the taxpayers should promptly make payments and avail Cenvat credit with immediate effect to avoid any lapse of credit.
For the ease of convenience, applicable action points for various fact situation have been stipulated in the form of table below that may serve as a ready reckoner for taxpayers under the following scenarios:
• Under Full Reverse Charge Mechanism
• Under Partial Reverse Charge Mechanism
o Service provider’s portion
o Assessee’s portion
• Under General Provisions (i.e. where liability to pay Service Tax is on the provider)
| Sl. No | Provisions Applicable | Situations | Action Point |
| 1. | Under Full Reverse Charge Mechanism | 1.1 Payment of invoice and Service Tax made before 6 months from 31 August 2014, but credit not yet taken | Take credit on or before 31 August 2014, else it may lapse |
| 1.2 Payment of invoice and Service Tax already made and the period of 6 months from date of invoice would expire after31 August 2014, but credit not yet taken | Take credit now or maximum within 6 months from the date of challan, else it may lapse | ||
| 1.3 Payment of invoice and/ or Service Tax not made up to 31 August 2014 | W.e.f. 1 September 2014, credit can be taken within 6 months from the date of challan, irrespective of the date of invoice or payment thereof | ||
| 2. | Under Partial Reverse Charge Mechanism(There are two components of Service Tax –
a) Portion of Service Tax charged by the provider in the invoice, hereinafter referred as ‘service provider’s portion’; and b) Portion of Service Tax paid by the service recipient, hereinafter referred as ‘assessee’s portion’. The action points for both the components are provided separately.) |
2.1 Payment of invoice and Service Tax made before 6 months from 31 August 2014, but credit not yet taken | Take credit for assessee’s portion as well as service provider’s portion on or before 31 August 2014, else it may lapse |
| 2.2 Payment of invoice and Service Tax already made and the period of 6 months from date of invoice would expire after 31 August 2014, but credit not yet taken | Take credit for assessee’s portion now or maximum within 6 months from the date of challan, else it may lapseTake credit for service provider’s portion now or maximum within 6 months period from the date of invoice, else it may lapse | ||
| 2.3 Payment of invoice and/ or Service Tax not made up to 31 August 2014, and the period of 6 months from date of invoice would expire on or before 31 August 2014 | W.e.f. 1 September 2014, credit of the assessee’s portion can be taken within 6 months from the date of challan, provided payment for invoice is made before availing the creditMake payment of invoice including tax thereon and avail credit before 31 August 2014, otherwise credit of service provider’s portion will lapse | ||
| 2.4 Payment of invoice and/ or Service Tax not made up to 31 August 2014, and the period of 6 months from date of invoice would expire after 31 August 2014 | W.e.f. 1 September 2014, credit of the assessee’s portion can be taken within 6 months from the date of challan, provided payment for invoice is made before availing the creditW.e.f. 1 September 2014, credit can be taken for service provider’s portion within 6 months from the date of invoice, provided payment for invoice including tax thereon is made before availing the credit | ||
| 3. | Under General Provisions | 3.1 6 Months would lapse from date of payment of invoice and Service Tax on 31 August 2014, but credit not yet taken | Avail the credit by 31 August 2014, otherwise credit may lapse |
| 3.2 Payment of invoice and Service Tax already made and the period of 6 months from date of invoice would expire after 31 August 2014, but credit not yet taken | Take credit now or maximum within 6 months from the date of invoice, else it may lapse | ||
| 3.3 Payment of invoice and/ or Service Tax not made up to 31 August 2014, and the period of 6 months from date of invoice would expire on or before 31 August 2014 | Make the payment and avail credit by 31 August 2014, otherwise it may lapse | ||
| 3.4 Payment of invoice and/ or Service Tax not made up to 31 August 2014, and the period of 6 months from date of invoice would expire after 31 August 2014 | W.e.f. 1 September 2014, credit can be taken within 6 months from the date of invoice,provided payment for invoice including tax thereon is made within 6 months of the invoice |
It is relevant to point out that since the above amendments are made in Rule 4 of the Cenvat Credit Rules, 2004 that provide for the conditions for allowing Cenvat credit, the above conclusion is derived on the assumption that credit ‘taken’ would mean credit ‘availed’ and not ‘utilized’.
By Parul Nagpal and Tripti Dhar