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25 Aug 2014

CENVAT Credit available to service recipient even if Service Provider has not discharged its Service Tax Liability

In the recently concluded case of General Manager, BSNL v. Commissioner of Central Excise, Lucknow 2014 (8) TMI 343, the honourable New Delhi CESTAT held that non-payment of Service Tax by the service provider to government shall not affect the eligibility of the service recipient to claim CENVAT Credit of the same provided that he has duly complied the provisions of Rule 4(7) of CENVAT Credit Rules, 2004.

In the instant case, CENVAT credit was availed by BSNL on 31st March 2007 in accordance with Rule 4(7) ibid prevalent during the period i.e. after payment of invoice amount and Service Tax amount to the service provider. The CENVAT Credit was disallowed to the recipient of service i.e. BSNL, on the grounds that the service provider had not paid the collected Service Tax amount to the credit of Central Government till the date of availment of CENVAT credit on the same by BSNL.

The honorable CESTAT held that for the purpose of availing CENVAT Credit, there is no requirement that the Service Tax should have been deposited by the service provider before the availment of the credit. If the service provider has not deposited the service tax with the department on due date, revenue's remedy lies at the end of the service provider for recovery of the service tax along with interest; CENVAT Credit to the service recipient shall not be disallowed.