Input Service Credit vis-a-vis Services Debtors Write-off

Reversal of Input Service Credit in case of service Debtors written off in the books of accounts

A.     Insofar, there is no provision in the CC Rules for reversal of input service credit in case services Debtors are written-off.

B.      For better understanding we may like to first discuss upon whether any reversal of CENVAT credit on inputs is required when Debtors are written off in the books of accounts. The answer is 'No'.

Reason being that at the time of removal of final products the CENVAT (excise duty) is very much already paid by the manufacturer by 5th (or 6th in case of e-net payment) of the following month. Hence, the final goods upon removal/sale have already suffered excise duty. Thus, on sale of goods, when debtors are written-off in the books of account, the reversal of Input Service Credit is not required.

C.  However, notwithstanding point A. above, we may in a manner similar to point B. above, would like to analyze the subject as to whether any reversal of Input Service Credit is required in case services Debtors are written off in the books of accounts.

à We opine that at first it needs to be ensured that as a provider of services whether the service tax payable on sale of output taxable services (now as Debtors) has been paid to the department. If yes, then there is no need for any reversal of Input Service Credit in case of service Debtors are written off in the books of accounts.

à Secondly, as a provider of taxable services, the service tax so payable on providing the output taxable services (now as Debtors) is still payable (i.e., which is to be paid on realizing the same from the recipients of such services i.e., upon the Debtors collection) then there seems a point of debate w.r.t., the input service credit been availed (on input services) used by the provider of taxable service for providing an output service (but is eventually written-off as Debtors and on which the output service tax is still due to be paid ... pending Debtors collections).

à The debate is that input services (on which input service credit is availed) has been used by the provider of taxable service for providing an output taxable service on which the output service tax is eventually not paid (i.e., be it because of the debtors write-off).

In view of the foregoing, we do however suggest to go with point A. above and accordingly refrain from any reversal of Input Service Credit in case of service Debtors written off in the books of accounts.