Question56:With reference to trailed e-mail we would like to submit our query as under :

(1) During audit, queries regarding non-payment of service tax under reverse charge mechanism are raised. Credit of service tax under reverse charge mechanism was admissible under Central Excise and Service Tax law.

The question arises as to what will be the status of such service tax paid in respect of earlier period at the time of audit. Legally such credit should be admissible. But there is no provision in the system to claim the credit. So what to do'

(2) Further we would like to submit that XYZ Limited a company located in India have entered an loan agreement (ECB) with a foreign bank, details of which are as under:


Borrower : XYZ Limited, India

Agent : Ram & Co., Germany

Bank : Shyam & Co., Germany


The foreign bank sent loan proposal of XYZ Limited to HERMES an insurance company in Germany for seeking cover against nonpayment of borrowed amount if any by XYZ Limited. HERMES charged some amount from the foreign bank for such insurance by billing in the name of the said foreign bank. In turn the foreign bank charged the said amount from XYZ Limited by debiting to their loan account i.e. re-imbursed by XYZ Limited located in India to foreign bank.

Please give your valuable opinion whether any service tax liability of XYZ Limited under RCM is involved in the services rendered by HERMES to the foreign bank as the same was rendered outside India and neither billed to XYZ Limited nor paid by XYZ Limited directly to the HERMES ' Though the same was paid by the foreign bank by debiting loan account of XYZ Limited.

If yes, under which provisions of service tax rules & regulations '

Question

(1) During audit, queries regarding non-payment of service tax under reverse charge mechanism are raised. Credit of service tax under reverse charge mechanism was admissible under Central Excise and Service Tax law.

The question arises as to what will be the status of such service tax paid in respect of earlier period at the time of audit. Legally such credit should be admissible. But there is no provision in the system to claim the credit. So what to do'


Answer: The transition provision under Section 140 (1)provide benefit to take credit as per last return filed so the credit available is the credit shown in the return as on 30th June 2017

For any demand or refund after it relating to earlier period you have to refer Section 142

Section 142(7) says all the refund will be given in cash and all the demand will have to be deposited in cash

Further restrict the ITC of the same

So this credit will not be allowed .(REPLY dt. 12/2/2018)