Taxation: Taking re-credit of reversed credit

Updated: February 3, 2015 1:41:20 PM

Queries on taxation and service tax liabilities, addressed by Abhishek Jain and Achal Chawla of EY

We are engaged in event management services. We avail of Cenvat credit of the service tax paid on input services used for providing these services. As per our understanding, Cenvat credit cannot be taken after six months from the date of invoice. Further, credit taken is required to be reversed if payment for input service and service tax payable thereon is not made within three months of the date of invoice. My query is “whether Cenvat credit can be re-taken after six months in a scenario where Cenvat credit taken within six months from the date of invoice was reversed due to non-payment of input service charges and service tax”?

Your understanding that Cenvat credit cannot be taken after six months from the date of invoice is absolutely correct. However, a recently issued Circular clarifies that the requirement of six months is applicable only when credit is availed of for the first time. It would not apply for taking re-credit of amount reversed, if such credit was initially taken within six months from the date of the invoice. Thus, yes, Cenvat credit can be taken after six months also where such credit was initially taken within six months from the date of invoice but reversed due to non-payment of input service charges and service tax.

VAT concession only on resale of used cars
We are an authorised dealer in Karnataka, directly purchasing vehicles from the manufacturer and selling the same. We had purchased certain vehicles from the manufacturer for the purposes of demonstration and test drive. On the sale of such vehicles we have paid VAT at a lower rate of 4% applicable for sale of used cars. It has recently come to our notice that the department denied the benefit in case of some other dealers. Can you confirm whether we have correctly taken the benefit under Karnataka VAT Act, 2003?

We understand that in the instant case the taxpayer had purchased certain vehicles from the manufacturer for the purposes of demonstration and test drive. On these vehicles becoming obsolete the same are sold by the taxpayer to the customers. As per the recent judgment of the Karnataka High Court, the high court has clarified that the benefit of the exemption for the used cars will be available only in the case where a dealer purchases a used car and sells the same. It has no application to a case where a dealer purchases the cars from a manufacturer. Accordingly, in the present case we understand that the taxpayer purchases brand new cars from the manufacturer and then used the same for the purposes of demonstration instead of selling the same to the customer. Hence, such a car sold subsequently to the customer will not be a case for purchase and sale of used cars. Hence, the benefit of concessional rate of VAT i.e., 4% on the sale of cars used for demo purposes would not be available to the taxpayer.

The replies do not constitute professional advice. Neither EY nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to sme@expressindia.com

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

FinancialExpress_1x1_Imp_Desktop