14 November 2007
XYZ Ltd receives an input invoice on which service tax is charged. It bonafide makes the payment of Gross bill value to the vendor.
The vendor duly pays the tax to the credit of Govt. in view of Section 73A
However, later it was found that the service on which such tax was charged was not taxable u/s 65(105).
Now will XYZ Ltd be entitled to availed the Cenvat credit of Service tax which it has paid bonafide and which is already deposited with the Govt as Service Tax.
Rule 3(1) of Cenvat Credit Rules 2004 mentions the cases where an assessee can avail Cenvat Credit. This list is exhaustive. This means any assessee can avail credit of only those taxes/duties/cess which are mentioned in Rule 3 (1)
Subclause (ix) of that rule specifies "service tax leviable under section 66 of the Finance Act"
This means an assessee can take credit of only those services which are mentioned in 66 (which of course give reference to 65(105))
Looking back to your reply, since the service on which tax was charged and paid is not mentioned u/s 65(105), how could we take the credit of such service tax.
The service provider is registered under the Act He has valid registration Number He has collected the Taxes and deposited with the treasury
Any amount paid to the exchequer is available as credit even if erroneously paid
There is no revenue loss if credit is availed
If the Service provider applies for refund it would be treated as unjust enrichment, unless you provide a certificate that credit has not been availed and credit note to that affect has been given to you by the service provider.
If you do not intend to challenge the eligibility, then you may deduct the service tax amount from the providers bill and pay the balance amount and advise the service provider to file a refund claim.
Unless the authorities challenge the service as not being a notified service, credit eligibility will hold good in the eyes of law.
However if you can state the nature of service, which you believe is not taxable, the debate can be more fruitful.
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