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Cenvat credit

Babu George (CEO) (29 Points)

18 August 2016

I am operating a security agency and I am remitting Service Tax for the services provided for my clients, for example I have to remit Rs ‘X’ as service tax for say Quarter – I

I have outsourced some of the activities like manpower recruiting etc to an agency called consultants.

My consultants raised a bill on my Security Agency, the bill value includes Service Tax @ 14 + cess say Rs ‘Y’. So I paid Rs ‘Y’ including Service Tax (Say Rs Z) to the consultants.

My consultants remitted Service Tax Rs ‘Z’ to the Government and provided me the Chalan.

No can I take Cenvat credit of Rs ‘Z’ and then pay net Rs’ X’ ( Minus) ‘Z’ as Service Tax ?

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2 Replies

Bharath (C.A,C.S) (3983 Points)
Replied 18 August 2016

Hi,

Service tax on supply of manpower service is payable fully by recipient of service under Reverse Charge Mechanism if the following conditions are satisfied:

1. Service provider is any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory;

2. Service receiver is a business entity registered as a body corporate located in the taxable territory;

In all other cases, the service tax has to be by the service provider fully i.e 100%.

Assuming that in your case as a service provider, you are paying 100% tax,you can fully avail the CENVAT credit of the amount you pay to your sub contractor/consultants.Their invoice is enough for you to take the credit. You need not wait for your consultant to remit the same to government. It is not your obligation. So you can go ahead and take credit of service tax which is charged in the invoice provided by your consultant.

Regards

Bharath

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Sunil Kumar (Indirect Taxation ) (1246 Points)
Replied 19 August 2016

I will try to answer, in bit technical terms:

Your Input Service is entitled for the credit, there is no doubt.

But the condition of Rule 4(7) of Cenvat Credit need to be taken care of which says, the service receiver needs to make payment within a period of three months from the date of Invoice. If you not make the payment then you need to reverse the credit you had taken.
Thereafter, you again entitled to take credit when you make payment.

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