28 February 2016
Normally the service tax paid by a service recipient on carriage inwards is not CENVATable i.e one cannot claim input credit of service tax paid to set off against Service Tax or Central Excise payable by the assessee. In other words the service tax paid under RCM is part of the transportation cost.
The liability to pay service tax on carriage inwards under RCM arises ON PAYMENT and not on recording. Therefore when the freight invoice is received, if it is not paid immediately, the normal entry of freight i.e. Carriage Inwards debit - Transporter credit is passed.
The liability to pay service tax arises when the transporter is paid. Two entries are to be passed: (1)Transporter Dr To Bank (2) Carriage Inwards Dr To Service Tax (RCM) Payable
The service tax liability is to be discharged through bank payment by the 7th of the subsequent month and then the following entry will be passed: Service Tax (RCM) Payable Dr To Bank
RCM dues have to be paid only in cash and CENVAT credit cannot be utilized for their payment.
Effectively the service tax paid under RCM goes to increase the cost of Carriage Inwards.
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