Dear Professional Colleague,
Credit of EC & SHEC can be used for payment of Service tax
With the underlying theme of setting the stage for Goods and Services Tax (“GST”), the Union Budget, 2015 had proposed to do away with the Education Cess (EC) and Secondary and Higher Education Cess (SHEC) [collectively referred to as “Cess”]. While withdrawal of Cess on Excise duty has been made effective from March 1, 2015, Cess on Service tax has also been withdrawn effective from June 1, 2015.
The act of withdrawal of Cess presented the Industry at large with a bouquet of concerns in view of the provisions of erstwhile Rule 3(7)(b) of the Cenvat Credit Rules, 2004 (“the Credit Rules”) which permitted utilisation of Cenvat credit of Excise duty/ Service tax for payment of Cess but not vice versa.
In this regard, the Central Government (“CG”) vide Notification No. 12/2015-Central Excise (N.T.) dated April 30, 2015 had amended the Credit Rules to allow use of Credit of Cess charged on Inputs, Input Services and Capital goods received on or after March 1, 2015 in the factory for payment of Excise Duty on or after March 1, 2015. However, the situation was not made clear as regards EC and SHEC charged on Inputs, Input Services and Capital goods, for payment of Service tax. Now, the CG vide Notification No. 22/2015-Central Excise (N.T.) dated October 29, 2015 (“the Notification”) has amended the Credit Rules once again to allow use of Credit of Cess charged on Inputs, Input Services and Capital Goods received on or after June 1, 2015 for payment of output liability of Service tax on or after June 1, 2015 on similar line as was done for the manufacturers.
Proposed Amendment made in the Credit Rules:
The CG vide the Notification has amended the Credit Rules to insert the following proviso after the fifth proviso to Rule 3(7)(b) thereof:
“Provided also that the credit of Education Cess and Secondary and Higher Education Cess paid on inputs or capital goods received in the premises of the provider of output service on or after the 1st day of June, 2015 can be utilized for payment of service tax on any output service:
Provided also that the credit of balance fifty per cent Education Cess and Secondary and Higher Education Cess paid on capital goods received in the premises of the provider of output service in the financial year 2014-15 can be utilized for payment of service tax on any output service:
Provided also that the credit of Education Cess and Secondary and Higher Education Cess paid on input service in respect of which the invoice, bill, challan or Service Tax Certificate for Transportation of Goods by Rail (referred to in rule 9), as the case may be, is received by the provider of output service on or after the 1st day of June, 2015 can be utilized for payment of service tax on any output service.”
Open issue– Still warranting clarification
Though, the CG has tried to address the concerns of the manufacturer/ service provider to certain extent as regards utilization of Cess availed on or after June 1, 2015 but at the same time, the Notification again fails to amend/ clarify the following open issue, which is a daunting concern amongst the Trade and also, was not clarified even in the last Notification issued for allowing credit of Cess for payment of Excise duty by manufacturers:
What will be the fate of balance of Cess lying unutilized in Cenvat credit account of the manufacturer/ service provider as on February 28, 2015/ June 1, 2015 respectively?
While the afore stated amendment to the Credit Rules allows utilisation of the credit of Cess on Inputs/ Capital goods/ Input services received on or after June 1, 2015, but the Notification fails to clarify as to what will be the destiny of the amount of Cess lying unutilized in the Cenvat credit account of the manufacturers/ service provider as on February 28, 2015/ June 1, 2015 respectively.
It is expected that the Board will issue appropriate clarification at the earliest to the stated issue.
Hope the information will assist you in your Professional endeavours. In case of any query/ information, please do not hesitate to write back to us.
Thanks & Best Regards,
FCA, FCS, LLB, B.Com (Hons)
Author of a book on Goods and Services Tax, titled, “GOODS AND SERVICES TAX – INTRODUCTION AND WAY FORWARD” (1st Edition)
A2Z TAXCORP LLP
Tax and Law Practitioners
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