Payment of Service Tax on accrual basis on par with Excise – Where is corresponding amendment to Rule 4(7) of CCRs, 2004?

NEW DELHI, FEB 28, 2011: THE FM in his budget speech declared that the adoption of Point of Taxation rules for services would shift the basis for tax collection from “cash” towards “accrual” basis as with Central Excise duty. Accordingly Rule 6 of the Service tax Rules has been amended ( with effect from 1.4.2011) to do away with paying service tax only on receipt of the amount from the client. While on inputs CENVAT credit is allowed on receipt of the inputs, as far as service tax is concerned, it is allowed only after making payment to the service provider. This is because the service provider will pay service tax only after receiving the amount from the clients. Rule 4(7) of the CEVNAT Credit Rules 2004 reads:

(7) The CENVAT credit in respect of input service shall be allowed, on or after the day which payment is made of the value of input service and the service tax paid or payable as is indicated in invoice, bill or, as the case may be, challan referred to in rule 9.

Now that the Rule 6 of Service Tax rules is amended with effect from 1.4.2011 to make the assessee liable for payment of service tax on par with excise, there is no reason to retain this condition in CENVAT Credit Rules. However, such an important amendment is missing in the CENVAT Credit Rules, 2004. Hope corrective action will be taken before 1.4.2011.