Reversal of Input Credit Utilised

As per Amendment in the CENVAT Credit (Third Amendment) Rules, 2011  Service Tax Input Credit against the Purchase Bills can be availed even if the payment is not made to the Service provider w.e.f 1-4-2011 (applicable only for the service bills raised after 1-4-2011). However if the payment is not made to the service provider within 3 months then, the Service tax credit utilised has to be reversed.

Reversal of utilised input Credit can be accounted through Journal Voucher. To reverse the Utilised Input Credit a New flag – Reversal of Utilised Input Credit has been provided in Journal Voucher.

Example: On 2-7-2012, ABC Company purchased Advertising Services from Krypton Agency for Rs. 2,24,720 (inclusive of service Tax).  
 

On 6-7-2012 ABC Company utilised the Input Credit of Rs. 24,720 towards the service bill dated 2-7-2012

 

After utilising the input credit ABC Company failed to make the payment to Krypton Agency with in Three months from the date of bill and decides to reverse the Credit availed.

 

On 5-7-2012 ABC Company recorded a Input Credit Reversal entry for Rs. 24,720.

To record the above transaction

1. Record the purchase of services  in Purchase Voucher

2. Record Journal Voucher for Input Credit Adjustment

3. Record Journal Voucher to Reverse the utilised Input Credit

Step 1: Record the purchase of services  in Purchase Voucher

In Service Tax Details screen enter the Service Amount as Rs. 2,00,000

The completed Purchase Voucher appears as shown

Step 2: Record Journal Voucher for Input Credit Adjustment

To adjust the Input Credit against the tax payable, create the Voucher Class in Journal Voucher. To create voucher class refer - Create the Voucher Class in Journal Voucher

Go to Gateway of Tally > Accounting Vouchers > F7: Journal

  1. In Change Voucher Type screen, in Class field select Service Tax Adjustments

  2. Press F2 and change the date to 6-07-2012

  3. In Used for field select Input Credit Adjustments flag

  1. In Debit field select Service Taxledger - Service Tax @ 12% (to adjust the Output Service Tax on services sold)

  2. In Service Tax Details screen

  3. In Type of Ref field select Agst Ref

  4. In Name field select Sale/2-1 dated 6-7-2012 from Pending Tax bills

  5. Based on the tax bill selected Category as Event Management Service and Amount of Rs. 30,000 will be defaulted. Here the Service Tax Credit available is Rs. 24,000, Enter the available input credit in Amount field.

  1. In Debit field select Education Cess Ledger - Education Cess @ 2% (to adjust the Output Education Cess on services sold)

  2. In Service Tax Details screen, select Agst Ref in Type of Ref field and select the Tax Reference Sale /2-1 and enter Rs. 480 in Amount field

  1. In Debit field select Secondary Education Cess Ledger - Secondary Education Cess @ 1% (to adjust the Output Secondary Education Cess on services sold)

  2. In Service Tax Details screen, select Agst Ref in Type of Ref field and select the Tax Reference Sale /2-1 and enter Rs. 240 in Amount field

  1. In Credit field select Service Tax Ledger - Service Tax @ 12% (to adjust Input Credit of Service Taxpaid on services purchased)

  2. In Service Tax Details screen,

  3. In Type of Ref field select Agst Ref

  4. In Name field select Purc/1-12-13 dated 2-7-2012 from Pending Tax bills

  5. Based on the tax bill selected Category will be defaulted to Advertising Agency and Amount to Rs. 24,000

  1. In Credit field select Education Cess Ledger - Education Cess @ 2% (to adjust Input Credit of education cess paid on services purchased)

  2. In Service Tax Details screen, select Agst Ref in Type of Ref field and select the Tax Reference Sale /1-12-13. Based on the tax bill selected Category will be defaulted to Advertising Agency and Amount to Rs. 480

  3. In Credit field select Secondary Education Cess Ledger - Secondary Education Cess @ 1% (to adjust Input Credit of secondary education cess paid on services purchased)

  1. In Service Tax Details screen, select Agst Ref in Type of Ref field and select the Tax Reference Sale /1-12-13. Based on the tax bill selected Category will be defaulted to Advertising Agency and Amount to Rs. 240

  2. Set the option Provide Details to Yes and in the Service Tax Payment Details screen specify the period for which the Input Credit are adjusted

The completed Journal Voucher is displayed as shown

  1. Press Enter to Accept and save.

To view the details of Input Credit availed on the Unpaid Bills a new report Reversal Details has been provided

To view the report, go to Gateway of Tally > Display > Statutory Reports > Service Tax Reports > Input Credit > Reversal Details

This report displays Utilised Input credit on Unpaid Bills and the amount of Input credit to be reversed if payment is not made with in 3 months.

3. Record Journal Voucher to Reverse the utilised Input Credit

As per the recent amendments if the input credit of any unpaid bill is utilised to adjust the Service Taxpayable and such bill remains unpaid for more than 3 months, the utilised input credit has to be reversed.

After 3 month ABC Company checked its outstanding bills in which the Purchase bill - Purc/1-12-13 is pending. Hence, company is reversing the utilised input credit

To reverse utilised input credit

Go to Gateway of Tally > Accounting Vouchers > F7: Journal

  1. In Change Voucher Type screen, in Class field select Service Tax Adjustments

  2. Press F2 and change the date to 5-07-2012

  3. In Used for field select Reversal of Utilised Input Credit flag

  1. In Debit field select Service Tax ledger - Service Tax @ 12% and press enter to view Service Tax Details screen

  2. In Service Tax Details screen

  3. In Type of Ref field select Agst Ref

  4. In Name field select the Purchase bill - Purc/1-12-13 of which the credit to be reversed

Completed Service Tax Details screen is displayed as shown

  1. In Debit field select Service Tax ledger - Education Cess @ 2% and press enter to view Service Tax Details Screen

  2. In Service Tax Details screen

  3. In Type of Ref field select Agst Ref

  4. In Name field select the Purchase bill - Purc/1-12-13 of which the credit to be reversed

  1. In Debit field select Service Tax ledger - Secondary Education Cess @ 1% and press enter to view Service Tax Details Screen

  2. In Service Tax Details screen,  in Type of Ref field select Agst Ref. In Name field select the Purchase bill - Purc/1-12-13 of which the credit to be reversed

  3. To create the Tax liability to the extent of input credit reversed, in Credit field select Service Tax ledger - Service Tax @ 12% and press enter to view Service Tax Details Screen

Note: To create the tax liability to the extent of reversal of Input Credit you have to select the Service Tax ledger (created under Duties & Taxes).

  1. In Service Tax Details screen

  1. In Type of Ref field select New Ref

  2. In Name field accept the default bill reference displayed - Jrnl/5-1

  3. In Category field, if the user can clearly identify the service category towards which the Input Credit reversed was adjusted can select the same category or can select any appropriate Service Category

Here, ABC Company is selecting Taxable Service category towards which earlier the reversed input credit was utilised.

  1. Similarly, in Credit field select Education Cess and Secondary Education Cess ledger to create the tax liability.

The completed Reversal of Utilised Input Credit Journal Voucher is displayed as shown

  1. Press Enter to save

After recording the Reversal entry, the transaction details of Purc/1-11-12 will not be displayed in Reversal Details.

In the reversal entry as the Tax Liability is raised to the extent of Reversed Utilised Input Credit, transaction details will be displayed in Bill Date Wise Service Tax Payable report