SKP Tax Alert
26 November 2014 | Volume 7 Issue 13
Clarification on timing of claiming CENVAT credit on inputs and input services

Until 1 September 2014, there was no time limit for claiming CENVAT credit on inputs and input services received by manufacturers or service providers. In case of inputs, credit could be claimed once goods entered the factory premises and in case of input services, credit could be claimed on receiving the invoice.  
 
However, the Union Budget 2014-15 set a six-month time limit from the date of issue of invoice, bill of entry, challan, etc. to claim credit on inputs and input services. This provision was applicable from 1 September 2014.
 
This amendment led to several ambiguities, which include the following:
  • Would this amendment be applicable to CENVAT credit claimed from 1 September 2014 or invoices issued post 1 September 2014?
  • In case the service provider is not paid within six months of the date of invoice, CENVAT credit claimed would be reversed; however, can it be re-availed on payment after six months?
  • Can CENVAT credit be claimed on the basis of a challan after six months from the date of challan?
  • In cases where inputs are written off, CENVAT credit claimed would be reversed; however, can it be claimed again after six months?
  • Would the credit lapse if invoices are received after six months from the date of invoice?
In order to reduce such ambiguities and following representations made by the industry, certain aspects were clarified in Circular No. 990/14/2014-Cx-8 dated 19 November 2014:
  • CENVAT credit on input services is to be reversed if payment is not made to the service provider within three months of the date of invoice; however, CENVAT credit can be re-availed once the payment is made;
  • CENVAT credit is to be reversed if the value of inputs is written off before being used; however, credit can be re-availed when the inputs are used;
  • CENVAT credit on inputs cleared to job workers is to be reversed if the inputs are not returned within 180 days; however, credit can be re-availed once the processed goods are received.
The purpose of the amendment is to ensure that credit is claimed for the first time within a period of six months from the date of issue of documents such as invoices, supplementary invoices, challans, etc. Once this condition is satisfied, no further restriction would apply on reclaiming credit when the credit is reversed. 
SKP's Comments

This was a much-awaited clarification wherein the tax authorities lay emphasis on the timing of claiming credit and clarified the circumstances when credit can be re-availed without any restriction. With the amendment, credits pertaining to invoices issued after a period of six months would lapse.
 
However, the following key aspects have not been not clarified by the authorities:
  • As the amended provision is applicable from 1 September 2014, would it apply to invoices, challans, etc. received before 1 September 2014 or only to documents issued after this date?
  • In case of partial reverse charge wherein both, the service provider and service receiver, are liable to deposit Service Tax, credit can be claimed by the service receiver if payment is made to the service provider and Service Tax is deposited. Here, can credit be claimed by the service receiver if the date of payment to the service provider and tax deposited is after six months from the date of invoice?  
Accordingly, a business must be cautious at the time of claiming credit and should ensure that credit is claimed for the first time within a period of six months from the date of issue of invoice, supplementary invoice, challan, etc.
 
We hope you find the above information useful. Please feel free to get in touch with us if you need any assistance.

SKP
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ABOUT THIS TAX ALERT
This SKP Tax Alert contains general information existing at the time of its preparation only. It is intended as a news update and is not intended to be comprehensive nor to provide specific accounting, business, financial, investment, legal, tax or other professional advice or opinion or services. This tax alert is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Before making any decision or taking any action that may affect you or your business, you should consult a qualified professional adviser and also refer to the source pronouncement/documents on which this tax alert is based. It is also expressly clarified that this tax alert is not a solicitation or an invitation of any sort whatsoever or a source of advertising from SKP Group or any of its entities to create any adviser-client relationship.

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