CENVAT on service tax paid under reverse charge

Admissibility of credit of Service Tax paid as recipient under section 66A of the Finance Act, 1994

Letter F.No.354/148/2009-TRU, dated 16-7-2009

Please refer to your letter F. No. LTU/MUM/CX/TECH/MISC/3/2008 dated 10 th July, 2009 wherein you have pointed out that while the list of duties/taxes mentioned under Rule 3 of the CENVAT Credit Rule, 2004 covers section 66 of the Finance Act 1994, it does not mention section 66A of the Finance Act. 1994. You have stated that Section 66A of the Finance Act refers to payment by recipient of service imported from abroad, under reverse charge method and, therefore, the absence of mention of this section, legally makes credit of such tax paid ineligible. It has also been mentioned that while Board's letter F.No.BI/4/2006-TRU dated 19th April, 2006 clarified that if such imported service is used as input for providing any taxable output service, the service tax paid on such service can be taken as input credit, CERA has taken objection in view of the absence of specific mention of section 66A as stated above.

2. The matter has been examined. The provisions under section 66A state that in case service is provided from abroad and received in India , such taxable service shall be treated as if the recipient had himself provided the service in India , and accordingly all the provisions of Chapter V of the Finance Act, 1994 would apply. Therefore, it is clear that section 66A is not a charging section by itself. In fact, it only creates a legal fiction to deem import of service as provision of service within India so that the provisions of Chapter V of the Finance Act, 1994 can be applied to. The charging section remains section 66 even for the service imported. In other words, the tax collected from the recipient in terms of Section 66A is also tax chargeable under section 66 of the Finance Act, 1994.

3. In view of the foregoing, it is clear that there is no mistake or omission in the relevant provisions of the CENVAT Credit Rules, 2004 and that credit of tax paid on imported services should be allowed if they are in the nature of input services.

4. The CERA objection on the subject may, therefore, be replied to accordingly.