Service tax credit on supplementary invoice

Written by fe Bureau | Updated: Nov 13 2010, 05:18am hrs
We manufacture air conditioners and have received services from a vendor who has not charged service tax in his invoices. This was brought to the notice of our vendor and the amount of service tax to him was paid ; and he issued us a supplementary invoice. In relation to the above, we seek your advice whether we are eligible to avail of and utilise the said service tax credit

As per the provisions of the Cenvat Credit Rules, 2004, Cenvat credit can be availed of only if the documents based on which credit is availed of is specified therein. Unfortunately a supplementary invoice (issued by a service provider) is not amongst the documents mentioned in the rules. The permissibility of credit on the basis of supplementary invoice may be accepted as implied in the law at the higher appellate stages. However, the same is very likely to be denied by the first level authorities based on a technical reading of the law.

We manufacture shirting fabrics and import raw materials from our related party. With respect to such imports, we received a questionnaire from the SVB, customs department; to which a reply was filed within the timeframe of 30 days. However, our provisional assessment is pending finalisation and the specified period of 4 months has been lapsed (despite regular follow-ups on our end). In this regard, we seek your advice as to how long we need to carry on with the burden of 1% EDD and is there any legal remedy available to us

The customs circular no. 11/2001 dated 23 February 2001, clearly provides that if there is a delay in finalisation of the provisional assessment within a period of 4 months from the date of receipt of the reply, EDD would be discontinued and the concerned officer will be held responsible for such a delay.

Further, recently Bombay high court has held the same considering the fact that as a matter of practice, the customs authorities tend to increase the EDD from 1% to 5% in cases where the reply to the questionnaire has not been filed by the importer within 30 days. Similarly, going by the Principle of Estoppel, the authorities are also bound to finalise the SVB proceedings within the specified period of 4 months as they cannot rely only on one mandate of the circular, ignoring the other.

In the above scenario, relying on the circular you may make a formal representation to customs to finalise the assessment immediately or stop demanding EDD. In case, the benefit is denied you may move a writ petition before the high court for relief. Please note the relief will only be in the nature of discontinuance of EDD the goods will continue to be provisionally assessed till completion of SVB proceedings.

We manufacture agricultural tractors. We have recorded 100% Cenvat credit of capital goods in our financial statements. However, we have availed of and utilised 50% of the credit in the same financial year and have disclosed the same in our service tax returns. We seek your advice as to whether there would be any Cenvat credit implications on account of excess availment of credit by us in our financials.

With respect to credit pertaining to capital goods, the cenvat Credit Rules, 2004, provides that only 50% of the credit can be availed of in the year of purchase and remaining 50% can be availed of in the subsequent years.

The Rules further impose penalty for wrong availment of Cenvat credit in the credit register, however no restriction has been imposed on recording the full credit in the financial statements. Given the above, it appears that there may not be any Cenvat credit implications on account of record of excess availment of credit in the financials, provided only 50% credit is recorded and utilised as per the Cenvat credit register. However, as an accounting practice this is not encouraged as the balance 50% credit accrues only on the capital goods being in the factory for more than one year.

The replies do not constitute professional advice. Neither Ernst & Young nor FE is liable for any action taken on the basis of these replies