Partial Reverse charge provisions - Fully Changed
MARCH 17, 2015
By Satya Sai & Jagannadh Grandhi
Amendment relating to reverse charge mechanism is the common change in all the recent budgets including the present budget. The provisions relating to eligibility of Cenvat Credit in the case of partial reverse charge mechanism were amended in this budget.
Rule 4(7) of Cenvat Credit Rules ('CCR') deals with availment of cenvat credit on input services. As per which, Cenvat in respect of input services can be taken immediately on receipt of invoice.
Earlier, the second proviso to Rule 4(7) of CCR provided that the CENVAT credit in respect of input services which are subjected to partial reverse charge shall be allowed only after the payment of value of such input service and the service tax as indicated in invoice. Further, sixth proviso to Rule 4(7) stated that the manufacturer and the service provider shall not take CENVAT credit after six months (this has been enhanced to one year in this budget) of the date of issue of invoice.
From the combined reading of the second and sixth proviso, it can be said that Manufacturers and Services Providers cannot avail Cenvat Credit at all if the amount of value of service and service tax had not been made with in a period of 6 months from the date of invoice. This is because of the reason that 6 months time limit starts from the date of invoice and not from date of payment made to service provider.By virtue of the above provisos, Cenvat Credit in respect of partial reverse charge is linked with the payment of value of service to the service provider. This anomaly is rectified in the recent budget.
In the recent budget, the above provisos to Rule 4(7) are substituted vide Notification No.6/2015-C.E.(N.T.) dated 01.03.2015. As per the amended provisions, in case of partial reverse charge services, Cenvat Credit of service tax amount payable by the service receiver can be availed as and when service tax is paid to the department and manufacturers/service providers need not wait till the payment is made to the service provider. Whereas service tax amount paid/ payable by the service provider can be availed on the date of receipt of invoice. Further, the time limit for availment of Cenvat Credit is increased from 6 months to 1 year.
The effect of these amendments is as follows:
++ Now, the manufacturers and service providers need not wait till the payment of value of input service to service provider is made. They can avail Cenvat Credit of service tax indicated in the invoice as and when invoice is received.
++ Similarly, the manufacturers and service providers can now avail service tax portion paid by them through Challan immediately after making the payment to department.
++ Since the time limit has been increased from 6 months to 1 year, Cenvat Credit can be taken in respect of past invoices which are beyond 6 months and within 1 year on which manufacturers/service providers had previously not availed credit due to expiry of time limit.
The above amendment has come into effect from 01.03.2015. In such a case, a question which arises is whether the amended provisions are applicable to invoices issued prior to 01.03.2015 also. In our view, the above amended provisions shall be applicable to such invoices also as the provisions in force on date of availment of credit will apply for availment of Cenvat Credit.It is relevant to note that in the case of Osram Surya (P) Ltd. 2002-TIOL-64-SC-CX, the Hon'ble Supreme Court held that time limit is applicable even for credit relating to past period that is availed after introduction of provisions relating to time limit. Therefore, Cenvat Credit in respect of invoices issued prior to 01.03.2015 can be taken now if 1 year has not expired from the date of invoice.
However, it is relevant to note that third proviso to Rule 4(7) of CCR states that if the Cenvat of service tax indicated in the invoice is not paid within 3 months from the date of invoice, then such credit availed shall be reversed. However, the same can be availed later after the payment is made, even though the payment is paid after 1 year from the date of invoice as time limit of 1 year does not apply for re-credit which is clarified by the board vide Circular No. 990/14/2014-CX-8 dated 19.11.2014.
In a nutshell, the above provisions relating to availment of credit on partial reverse charge services can be summarised as under:
| Period of Invoice |
Service Provider Portion of service tax |
Service Recipient Portion of service tax |
| Invoices received on or after 01.03.2015 |
Cenvat Credit can be availed on the date of receipt of invoice. |
Cenvat Credit can be availed on payment of service tax to the department. |
|
Invoices received prior to 01.03.2015
Three months from the date of invoice is not elapsed at the time of availment.
|
Cenvat Credit can be availed now without payment to service provider. |
| Three months from the date of invoice is elapsed but within 1 year from the date of invoice. |
Cenvat Credit can be availed on payment of value of service and service tax indicated in the invoice to the service provider. |
(The authors are associated with Lakshmikumaran & Sridharan, Hyderabad and the views expressed are personal).
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