NO CENVAT CREDIT REVERSAL WHERE SERVICE TAX IS NOT PAID DUE TO NON-RECOVERY OF CONSIDERATION

No CENVAT Credit reversal required where Service tax is not paid due to non-receipt of consideration in case the assessee pays the service tax on receipt/collection basis under rule 6(1) of the service tax rules, 1994 as per the judgement of the Hon’ble tribunal in the case of Commissioner of Service Tax vs. Krishna Communication [(2013) 34 Taxmann.com].

Facts:

The Assessee is engaged in providing taxable services in the category of Advertising services. The Assessee has availed CENVAT credit of input services on which service tax liability was paid and it was not utilised for providing output services. Assessee was unable to collect some amount from service recipient to whom he rendered services and he written off the amount as bad debts. The authorities alleged that the assessee is required to reverse the CENVAT credit of those input services which is proportionate to the consideration not received.

Held :

The Hon’ble Tribunal has held that CENVAT credit is not required to be reversed where the assessee provided taxable service but did not discharge service tax due to non-recovery of consideration and observed as under:

(i)                  The input services have been taken correctly and have been used in providing output services. The output services are liable for the payment of service tax. As per rule 6 of the service tax rules, 1994, service tax is payable when the payment towards taxable services are received. No tax is to payable on that part of the amount which is not received. There is no provision in the CENVAT credit rules, 2004 to deny the proportional credit on the inputs which were used in providing the output service on which recovery is pending.

(ii)                The adjudicating authority has held that when service tax was not realised, the output service has not suffered any service tax. Hence the credit availed would fall under the category of wrongly utilised credit and Rule 14 of the CENVAT credit rules would apply.

In the regards, Hon’ble tribunal observed that the credit of input services availed is utilised in providing taxable output services. Rule 14 does not envisage recovery of credit in situations where service tax recovery was pending and later written off as bad debts.

Further it was observed that it is not possible to identify bad debt with any particular invoice on which the recovery was pending. There is no one-to-one connection in availing and utilising the credit. Hence there is no merit in the allegation that input credit has been wrongly utilised.

Thus, the Hon’ble tribunal held that proportional credit on the amount of the bad debts written off by the assessee is not liable to be reversed. Since credit availment and utilisation is not wrong hence no penalty is imposable.

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This Article has been Shared by Student of ICAI Palak Aggarwal. She can be reached at aggarwal.palak2809@gmail.com