Pradeep Jain - Chartered Accountant

Dear Sir, Our co. is using Manpower supplying Agency's service & has taken credit of service tax charged by manpower supplying agency, but this agency has not deposited the service tax collected from its clients to govt. deptt, so Department has issued showcause notice to our company & asked for the reversal of credit already taken, So can u plz suggest me what should we do & whether Deptt. can take such action against service receiver & plz give some legal supporting or any case law -- Thanks & Regards CA Neha

As per Rule 4(7) of Cenvat Credit, Rules 2004, “the Cenvat Credit in respect of input service shall be allowed on or after the day on which the invoice, bill or challan as the case may, is received” Further the service receiver cannot be liable for default of service provider in respect of non-payment of service tax. As per Explanation II of Rule 4(7), “if the manufacturer of goods or the provider of the output service fails to pay the amount payable under this sub-rule, it shall be recovered under the manner as provided in rule 14”. Further Rule 14 provides that the service tax along with interest shall be recovered from provider of output service and provision of section 73 and 75 of the Finance Act apply mutatis mutandis for effecting such recoveries. The above provisions make it clear interest and penalty will be leviable on defaulter. Further there are many cases in which held that credit cannot be denied due to default by service provider when amount in invoice already paid to supplier. e.g. 2010 (19) S.T.R. 772 (Tri. - Bang.) COTTON COUNTY RESORTS & ESTATES PVT. LTD. Versus COMMISSIONER OF C. EX., BELGAUM

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