REFUND OF CENVAT CREDIT TO SERVICE PROVIDERS (Part - II)

[Dr. Sanjiv Agarwal]

W.e.f. 01.07.2012, u/s 68(2) read with Notification No. 30/2012-ST dated 20.06.2012, Service Tax liability is required to be discharged under reverse charge mechanism for specified services. In such cases, Service Tax is required to be either fully paid by service receiver or paid at the rate of specified ratio by both, service provider as well as service receiver. In such proportional or partial reverse charge, there can be (and are) situations where the service provider is not in a position to take Cenvat credit to the till extent of accumulated Cenvat credit with the result that entire credit or some part thereof may remain unutilized and may therefore, result in no financial gain to such service provider. This is so because in partial reverse charge, service provider pays only a part of total Service Tax liability to the Government (may be 25 percent or 50 percent or 60 percent as the case may be). As such there will generally be accumulation of Cenvat credit in the books of service provider with no or little hope for credit utilization.

In terms of Serial Nos. 7(b), 8 and 9 of the table in Notification No. 30/2012 dated 20.6.2012, w.e.f. 01.07.2012 the new partial reverse charge mechanism is applicable to services provided or agreed to be provided by way of –

1. renting of a motor vehicle designed to carry passengers on non-abated value to any person who is not engaged in a similar business, or
2. supply of manpower for any purpose, or
3. service portion in execution of a works contract;

by any individual, Hindu Undivided Family or partnership firm, whether registered or not, including association of persons, located in the taxable territory to a business entity registered as a body corporate located in the taxable territory. Thus the nature of the service and the status of both the service provider and service receiver are important to determine the applicability of partial reverse charge provisions.

The ratio of Service Tax liability to be discharged for these specified services is as follows:-

Service	Provider	Receiver
Renting of vehicles	60 percent	40 percent
Supply of manpower / security services	25 percent	75 percent
Execution of works contact	50 percent	50 percent

Refund Applicable to Whom

Since partial reverse charge is applicable only when service provider is an individual or HUF or firm or LLP or association of person located in a taxable territory and when service receiver is a body corporate being a business entity located in taxable territory, refund under Rule 5B of Cenvat Credit Rules shall automatically apply only to such class of service providers.

In full (100 percent ) reverse charge cases, the concerned service is not considered to be an output service for the service provider and as such, is not eligible for Cenvat credit. In such cases, since credit itself is not allowable, there is no question of Cenvat refund. Therefore, Rule 5B of Cenvat Credit Rules is not applicable to such cases.

Period of and Time frame for Refund Claim

Refund of unutilized Cenvat credit taken on inputs and / or input services shall be claimed on a half yearly basis. Refund claims are required to be submitted in prescribed ‘Form-A’ to the jurisdictional Assistant / Deputy Commissioner of Central Excise, as the case may be, before the expiry of one year from the due date of filing of return for the half year. However, since the notification has been issued late, it has been provided that last date of filing of refund claim in ‘Form-A’ for the period commencing form 1^st July 2012 to 30^th September, 2012 shall be 30^th June, 2014. No refund shall be admissible for the Cenvat credit taken on inputs or input services received prior to 1^st July 2012.

Thus, refund claims for different periods can be filed as under:

Period	Due date of return	Latest by
Prior to 1st July 2012	-	No refund
1st July 2012 to 30th September 2012	30th April 2013	30th June, 2014
October 2012 to March 2013	10th September 2013	25th April, 2014
April 2013 to September 2013	25th October 2013	25th October, 2014
October 2013 to March 2014	25th April 2014	25th April, 2015

Application for Refund

The notification prescribes ‘Form-A’ for application for refund of Cenvat credit under Rule 5B of Cenvat credit rules which is to be filed for each half year separately. It will contain particulars of output services provided and Service Tax liability of the service provider and the service recipient during the relevant period –

1. Description of service
2. Value of output services provided during the half year
3. Total Service tax liability during the half year
4. Service tax liability discharged by the provider of output service during the half year
5. Service tax liability of the receiver of such output service during the half-year [Column( iii)–Column (iv)]

It will also contain following particulars of the amount eligible for refund at the end of each half year  -

1. Service tax liability of the receiver of such output service during the half-year (total of column 5 of above table)
2. Amount of unutilised Cenvat Credit taken on inputs or input services during the half year for providing services taxable under partial reverse charge [as calculated in para 1(a) of the notification].
3. The eligible refund amount (minimum of  column (ii)  and (iii)

'Form-A' will also contain particulars of bank account where in refund amount may be credited and a declaration to the effect that –

1. Particulars are correct
2. Satisfaction of all conditions as contained in Rule 5B and notification
3. Being rightful claimants of refund under rule 5B
4. Being authorized person to file refund claim on behalf of assessee
5. No other refund claim having been or to be filed under rule 5B for same half year.

Action on Application

The Assistant Commissioner or Deputy Commissioner to whom the application for refund is made may call for any document in case he has reason to believe that information provided in the refund claim is incorrect or insufficient and further enquiry needs to be caused before the sanction of refund claim.

Discussions to this article

[Sharad utekar]

Dear Sir, Your article is absolutely right, but you are never mentioned that if the case showing service receiver as well as provider both are individual proprietor then how should be service tax implied or what is the ration, in the case of manpower supply as well as work contract also,

please suggest, this fact is not mentioned in the law also.

Sharad Utekar

[Dr. Sanjiv Agarwal]

Dear Sir,

In case where both service provider and service receiver are individual / proprietor then the provisions of reverse charge mechanism will not be applicable. The normal provision will be applied in this case and service provider will discharge the service tax liability and not eligible for refund under this notification.

Regards,

Sanjiv Agarwal