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CBEC may like to speed up issuing Notification under Rule 5B of CCRs

FEBRUARY 22, 2013

By S Sivakumar, Advocate

THE ‘Reverse Charge Mechanism' covered under Section 68(2) of the Finance Act, 1994 is one of the most obnoxious development in the service tax law as applicable from July 1, 2012, requiring the service recipient to discharge the service tax liability, either fully or partially, in respect of several services like works contract services, manpower supply services, security agency services, services rendered by non-Executive Directors, rent-a-cab services, etc.

There could be several cases, where the service recipient is not in a position to utilize the CENVAT credit of the service tax paid on input services covered under the Reverse Charge Mechanism, due to a variety of reasons, including but not limited to the service recipient being a small scale service provider, a trader, etc.

The Central Government has, in its infinite wisdom, recognized this problem and has inserted Rule 5B, in the CENVAT Credit Rules, 2004, by notification 28/2012-CX(NT) dated 20.06.2012 with effect from 1-7-2012, which reads as follows:

Refund of CENVAT credit to service providers providing services taxed on reverse charge basis.-   

5B. A  provider of service providing services notified under sub-section (2) of Section 68 of the Finance Act and being unable to utilise the CENVAT credit availed on inputs and input services for payment of service tax on such output services, shall be allowed refund of such unutilised CENVAT credit subject to procedure, safeguards, conditions and limitations, as may be specified by the Board by notification in the Official Gazette.

Despite the fact that Rule 5B of CCR, 2004 envisages mitigating the hardship created on assessees, who are constrained to accumulate CENVAT credit due to payment of service tax under the Reverse Charge Mechanism, by laying down a refund mechanism, such assesses cannot get any relief unless and until the Board issues a Notification under this Rule.

It is pertinent to note that although Rule 5B came into the statute book on 1-7-2012 and even though more than five months have elapsed the Board has not found it apt to issue the notification in this regard.

Although DDT 1970 had covered this issue as early as on 26-10-2012, the Board chooses to turn a blind eye to a “trade beneficial measure” but appears hyper-active only on the “recovery” front.

Or is the Board having some other ideas?

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site. )

 RECENT DISCUSSION(S) POST YOUR COMMENTS
   
 
Sub: Rule 5B

Whether the Ministry issue a notification which can cover the past period?

There are so many cases where the Cenvat credit itself is not applicable. Where is the question of un-utilization of credit.
In such cases what is the remedy for the service recipient. What will happen to traders who pays the service tax under RCM.
The government should give a thought and solve such problems for industry and trade.

r vaidyanathan
Consultant - Indirect taxation

Posted by Ramadoss Vaidyanathan
 
Sub: Rule 5B

As far as my understanding goes this refund rule 5B is not applicable traders, SSIs, those persons liable to tax as service providers etc., since the said Rule refers Sec.68(2) according to which in the case of those services which are notified the tax shall be discharged by the service recipient. These cases are covered under Rule 2(1)(d) of STR, 1994. According to this rule the above said service providers i.e., SSIs, traders etc., are not covered. Hence, rule 5B of CCR, 2004 has limited application and not in general. If the Government is really interested in PUBLIC, it is necessary to amend Rule 2(1)(d) STR, 1994 also.

Any comments please on my understanding and interpretation?
C V SURYAM
Chartered Accountant

Posted by Suryam CV CA
 
Sub: Notification under rule 5B

The interest shown in issuing circular No.967/01/2013 CX dated 01-01-2013 is not shown in addressing concerns of tax payers. The notification referred to above must have been issued along with introduction of reverse charge provisions itself. Negligence of CBEC, who will take action? If tax payers didn't comply reverse charge provisions, they would have been behid the bars for non compliance. But no action on CBEC officials. There is no level playing field. We should remember that flourish starts with equity!!

Posted by Ch Venkataramanaiah
 
Sub: Rule 5B refund

Sir,
The learned author is of the view that Rule 5B of CCR 2004 would cater to the needs of service recipients who discharge service tax on reverse charge basis as required under Section 68(2)of the Finance Act,1994, be it a trader or small service provider. I beg to differ with his views. Rule 5B aims to provide relief to service providers like man power supply, security service who discharge partial service tax liability, say 25% of the total tax liability.As a result of discharging partial tax liability, there may arise a situation where the service providers may end up accumulating cenvat credit of inputs and inputs services utilized.However, the refund of accumulated credit under Rule 5B is subject to the conditions to be prescribed in a notification.
May I request the learned readers to respond please.

Posted by rrkothapally rrkothapally
 
Sub: Rule 5B

RRKOTHAPALLY is bang on the point. As the heading of the rule suggests, it is meant for service providers and not service recipients who are liable to pay ST on reverse charge basis. The sympathy on the service recipients who are paying ST on reverse charge basis is misplaced,because even before this amendment, they were paying ST to the exchequer through the service provider, and even at that time they were not able to utilize the credit. The requirement of this rule arose because the service providers who receive input service at full rate and discharge at partial rate would be left with accumulated credit. Thus, it is clear that the refund rule is phrased and aimed at correctly.

Posted by Ramasesha Rao Chepuri
 

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