pri Pre- Budget Memorandum 2018- Indirect Taxes Pre- Budget Memorandum 2018- Indirect Taxes

Service Tax

1. Transition provision for tax paid on receipt basis

Rule 6 of Service Tax Rules, 1994 provides that in case of such individuals, partnership firms and one-person companies whose aggregate value of taxable services provided from one or more premises is Rs. 50 lakhs or less in the previous financial year, the service provider shall have the option to pay tax on taxable services provided or agreed to be provided by him up to a total of rupees fifty lakhs in the current financial year, by the dates specified in this sub-rule with respect to the month or quarter, as the case may be, in which payment is received.

Section 140(5) of CGST Act, 2017 provides that a registered person shall be entitled to take, in his electronic credit ledger, credit of eligible duties and taxes in respect of inputs or input services received on or after the appointed day but the duty or tax in respect of which has been paid by the supplier under the existing law, subject to the condition that the invoice or any other duty or tax paying document of the same was recorded in the books of account of such person within a period of thirty days from the appointed day.

Section 142(11)(b) of CGST Act, 2017 provides that notwithstanding anything contained in section 13, no tax shall be payable on services under this Act to the extent the tax was leviable on the said services under Chapter V of the Finance Act, 1994.

Section 174(2) of CGST Act 2017 provides that the repeal of the Finance Act, 1994 as amended to the extent mentioned in the sub-section (1) or section 173 shall not affect any right, privilege, obligation, or liability acquired, accrued or incurred under the amended Act or repealed Acts or orders under such repealed or amended Acts.


In cases where services were provided in the earlier law and option of payment of service tax was exercised on receipt basis. Now if invoice for a service was raised and service was provided on or before 31.10.2016 but payment is expected to be received after July 2017, then owing to aforesaid provisions assessee is required to pay tax on receipt basis i.e. service tax.

Suggestion by ICAI
It is suggested that suitable clarification be provided in the law for such transition situations.
Further, suitable form of return be prescribed for intimation upon payment of applicable service tax.


1. Balance Credit of Krishi Kalyan Cess (KKC)

Krishi Kalyan Cess (KKC) @ 0.5% has been introduced w.e.f 01.06.2016 on the value of all or any of the taxable services for the purposes of financing and promoting initiatives to improve agriculture or for any other purpose relating thereto.

Further, it has been provided that CENVAT credit of Krishi Kalyan Cess paid on input services shall be allowed to be used for payment of the KKC on the service provided by a service provider.

Balance credit of KKC as on appointed date is not allowed to set off against GST liability.

Suggestion by ICAI
It is suggested that credit of KKC be allowed to be carried forward under GST regime to be set off against GST liability.

2. Availment of CENVAT Credit on Input

Rule 6 of CENVAT credit rules ,2017 provides that the CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service or in the premises of the job worker, in case goods are sent directly to the job worker on the direction of the manufacturer or the provider of output service, as the case may be. The proviso now provides that the manufacturer or the provider of output service shall not take CENVAT credit after one year from the date of issue of any of the documents specified in Rule 11(1).


The circular has not clarified in the respect of following circumstances:

  • Whether the amended proviso is applicable on the invoices issued prior or post to the effective date of amendment.
  • The case of interpretational issues and consequently extended period is invoked, then there will be demand of 5 years whereas credit of the same period will not be allowed which is against the spirit of law and will cause hardship to assessee. To illustrate, an assessee is rendering services for ` 100 and outsourcing the same for ` 80. Now, in case of old period investigation on some interpretational issue or based on some judgment form apex court, he is obliged to pay tax on ` 100 but will not be allowed to claim credit on ` 80. We may have live examples where different judgment suggests to pay tax after a substantial period pass over.

Suggestions by ICAI

i) In order to safeguard the assessee from the huge loss of CENVAT Credit due to non-payment for the purchase of input due to business policies, the amended provision must be brought prospectively i.e. on the invoice or goods received after the effective date of amendment. There exist multiple cases wherein due to business policies and payment terms and condition, assessee are taking credit only after making payment to vendors i.e. on receipt/payment basis and due to which they have neither yet availed the credit nor account for such credit in the books of account to avoid inconvenience. In such cases, assessee would lose huge amount of CENVAT credit for nothing.

(ii) It is suggested to clarify/ notify that the amended proviso shall not apply in the following cases:

(a) In case of retention money, time limit of one year may not apply.

(b) In case of pending cases before adjudicating authorities, wherein as a consequence of judgement assessee becomes eligible for CENVAT Credit.

(c) In case of cases with pending litigation/ under litigation, Credit be allowed for the period till the dispute under point of law is settled.

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