CREDIT OF SERVICE TAX AND EXCISE DUTY
While
presenting the Budget for the year 2004-;2005, the Hon'ble Finance
Minister said, "I propose to take a major step towards integrating the tax
on goods and services. Accordingly, I propose to extend credit of service tax
and excise duty across goods and services" (vide para 148 of his Speech).
Earlier, credit of service tax paid on input services was allowed only for
payment of service tax on output services and the excise duty paid on inputs
and capital goods was allowed only for payment of excise duty on final
products. It was announced by the Finance Minister in the Budget Speech that
credit of input tax will be extended across goods and services. Suitable
amendments in the rule making power under section 37 of the Central Excise Act,
1944 have been made by the Finance (No. 2) Act, 2004 and similar rule making
power was given under section 94 of the Finance Act, 1994 by the Finance Act,
2003. To give effect to this proposal, Government has made the CENVAT Credit Rules,
2004 vide Notification No. 23/2004-;CX (N.T.), dated 10th September 2004.
(text of Rules have been given in the Division IV of this book). The CENVAT
Credit Rules, 2004 have come into force from the date of enactment of Finance
(No. 2) Bill, 2004 i.e. 10-;9-;2004, which has replaced the CENVAT
Credit Rules, 2002 and Service Tax Credit Rules, 2002. Now, therefore, both
assessees under Central Excise and Service Tax will be allowed to take credit
of excise duty and service tax across goods and services subject to the
conditions mentioned under the CENVAT Credit Rules, 2004, however in this, only
those portion of the aforesaid Rules have been discussed which allow credit of
service tax and excise duty paid on input services and inputs to the output
service provider.
In
exercise of the powers conferred by section 37 of the Central Excise Act, 1944
and section 94 of the Finance Act, 1994 and in supersession of the CENVAT
Credit Rules, 2002 and the Service Tax Credit Rules, 2002, the Central Government
had made the CENVAT Credit Rules, 2004 vide Notification No. 23/2004-;Central
Excise(N.T.) [F. No. B2/32004-;TRU], dated 10-;9-;2004. These
Rules are extended to the whole of India, however nothing contained in these
rules relating to availment and utilization of credit of service tax shall
apply to the State of Jammu and Kashmir as provisions of services tax is also
applicable in the State of Jammu and Kashmir.
§
"capital goods" means:
(A) the following goods, namely: -
(i) all goods falling under
heading No. 68.02 and sub-;heading No. 6801.10 of the First Schedule to
the Excise Tariff Act;
(ii) pollution control equipment;
(iii) components, spares and accessories of the
goods specified at (i) and (ii);
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof; and
(vii) storage tank,
used -
(1) in the factory of the manufacturer of
the final products, but does not include any equipment or appliance used in an
office; or
(2) for providing output service;
(B) motor vehicle registered in the name of
provider of output service for providing my of the following taxable service
viz.
(i) courier agency
(ii) tour operator
(iii) rent-;a-;cab-;scheme
operator
(iv) cargo handling agency
(v) goods transports agency
(vi) outdoor caterer
(vii) pandal or shamiana contractor. [clause (a) of Rule 2]
§
"exempted goods" means excisable goods which are
exempt from the whole of the duty of excise leviable thereon, and includes
goods which are chargeable to "Nil" rate of duty. [clause (d) of Rule
2]
§
"exempted services" means taxable services which
are exempt from the whole of the service tax leviable thereon, and includes
services on which no service tax is leviable under section 66 of the Finance
Act. [clause (e) of Rule 2]
§
"input" means
(i) all goods, except light diesel oil,
high speed diesel oil and motor spirit, commonly known as petrol, used in or in
relation to the manufacture of final products whether directly or indirectly
and whether contained in the final product or not and includes lubricating
oils, greases, cutting oils, coolants, accessories of the final products
cleared along with the final product, goods used as paint, or as packing
material, or as fuel, or for generation of electricity or steam used in or in
relation to manufacture of final products or for any other purpose, within the
factory of production;
(ii) all
goods, except light diesel oil, high speed diesel oil, motor spirit, commonly
known as petrol and motor vehicles, used for providing any output service;
Explanation I. -;The light
diesel oil, high speed diesel oil or motor spirit, commonly known as petrol,
shall not be treated as an input for any purpose whatsoever.
Explanation
2.-;Input include goods used in the manufacture of capital goods which are
further used in the factory of the manufacturerm [clause (k) of Rule 2]
§
"input service" means any service,
(i) used by a Provider of taxable service
for providing an output service; or
(ii) used by the
manufacturer, whether directly or indirectly, in or in relation to the
manufacture of final products and clearance of final products from the place of
removal,
and
includes services used in relation to setting up, modernization, renovation or
repairs of a factory, premises of provider of output service or an office
relating to such factory or premises, advertisement or sales promotion, market
research, storage upto the place of removal, procurement of inputs, activities
relating to business, such as accounting, auditing, financing, recruitment and
quality control, coaching and training, computer networking, credit rating,
share registry, and security, inward transportation of inputs or capital goods
and outward transportation upto the place of removal. [clause (1) of Rule 2]
§
"job work" means processing or working upon of raw
material or semifinished goods supplied to the job worker, so as to complete a
part or whole of the process resulting in the manufacture or finishing of an
article or any operation which is essential for aforesaid process and the
expression "job worker" shall be construed accordingly [clause (nd)
of Rule 2].
§
"output service" means any taxable service
provided by the provider of taxable service, to a customer, client, subscriber,
policy holder or any other person, as the case may be, and the expressions
'provider' and 'provided' shall be construed accordingly.
Explanation.-;For the removal of doubts it is hereby clarified that if a person liable for paying service tax does not provide any taxable service or does not manufacture final products, the service for which he is liable to pay service tax shall be deemed to be the output service. [clause (p) of Rule 2]
§
"person liable for paying service tax" has the
meaning as assigned to it in clause (d) of sub-;rule (1) of rule 2 of the
Service Tax Rules, 1994 [clause (q) of Rule 2]
§
"provider of taxable service" include a person
liable for paying service tax [clause (r) of Rule 2].
A provider
of taxable service shall be allowed to take credit (hereinafter referred to as
the CENVAT credit) of -
(i) the duty of excise
specified in the First Schedule to the Excise Tariff Act, leviable under the
Excise Act;
(ii) the duty of excise specified in the Second Schedule to the Excise Tariff Act, leviable under the Excise Act;
(iii) the additional duty of
excise leviable under section 3 of the Additional Duties of Excise (Textile and
Textile Articles) Act,1978 ;
(iv) the additional duty of
excise leviable under section 3 of the Additional Duties of Excise (Goods of
Special Importance) Act, 1957;
(v) the National Calamity Contingent duty
leviable under section 136 of the Finance Act, 2001;
(vi) the Education Cess on excisable goods leviable under section 91 read with section 93 of the Finance (No. 2) Act, 2004;
(vii) the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v) and (vi);
(viii) the additional duty of excise leviable
under section 157 of the Finance Act, 2003;
(ix) the service tax leviable under section 66
of the Finance Act; and
(x) the Education Cess on
taxable services leviable under section 91 read with section 95 of the Finance
(No. 2) Act, 2004,
paid on-
(i) any input or capital
goods received in premises of the provider of output service on or after the
10th day of September, 2004; and
(ii) any input service
received by the provider of output services on or after the 10th day of
September, 2004,
Explanation.
-;For the removal of doubts it is clarified that the manufacturer of the
final products and the provider of output service shall be allowed CENVAT
credit of additional duty leviable under section 3 of the Customs Tariff Act on
goods falling under heading 9801 of the First Schedule to the Customs Tariff
Act. [sub-;rule (1) of Rule 3].
In case
where a service which ceases to be an exempted service, the provider of the
output service shall be allowed to take CENVAT credit of the duty paid on the
inputs received on and after the 10th day of September, 2004 and lying in stock
on the date on which any service ceases to be an exempted Service and used for
providing such service . [sub-;rule (2) of Rule 3].
The CENVAT
credit may be utilized for payment of -
(a) an amount equal to
CENVAT credit taken on inputs if such inputs are removed as such or after being
partially processed; or
(b) an amount equal to the
CENVAT credit taken on capital goods if such capital goods are removed as such;
or
(c) service tax on any output service:
Provided
that while paying service tax, the CENVAT credit shall be utilized only to the
extent such credit is available on the last day of the month or quarter, as the
case may be, for payment of duty or tax relating to that month or the quarter,
as the case may be . [sub-;rule (4) of Rule 3].
When
inputs or capital goods, on which CENVAT credit has been taken, are removed as
such from the premises of the provider of output service, the provider of
output service shall pay an amount equal to the credit availed in respect of
such inputs or capital goods and such removal shall be made under the cover of
an invoice referred to in rule 9
Provided
that such payment shall not be required to be made where any inputs are removed
outside the premises of the provider of output service for providing the output
service:
Provided
further that such payment shall not be required to be made when any capital
goods are removed outside the premises of the provider of output service for
providing the output service and the capital goods are brought back to the
premises within 180 days, or such extended period not exceeding 180 days as may
be permitted by the jurisdictional Deputy Commissioner of Central Excise, or
Assistant Commissioner of Central Excise, as the case may be, of their removal,
. [sub-;rule (5) of Rule 3].
The amount
paid under sub-;rule (5) shall be eligible as CENVAT credit as if it was a
duty paid by the person who removed such goods under sub-;rule (5). [sub-;rule
(6) of Rule 3].
Notwithstanding
anything contained in sub-;rule (1) and sub-;rule (4),
(a) CENVAT credit in respect
of inputs or capital goods produced or manufactured, by a hundred per cent.
export-;oriented undertaking or by a unit in an Electronic Hardware
Technology Park or in a Software Technology Park other than a unit which pays
excise duty levied under section 3 of the Excise Act read with serial numbers
3,5, 6 and 7 of notification No. 23/2003-;Central Excise, dated the 31st
March, 2003, [G.S.R. 266(E), dated the 31st March, 2003] and used in providing
an output service, in any other place in India, in case the unit pays excise
duty under section 3 of the Excise Act read with serial number 2 of the
Notification No. 23/2003-;Central Excise, dated the 31st March, 2003, [G.S.R.
266(E), dated the 31st March, 2003], shall be admissible equivalent to the
amount calculated in the following manner, namely: -
Fifty per
cent of [X multiplied by 1(1+BCD/100) moltiplied by (CVD/100), where BCD and
CVD denote ad valorem rates, in per cent., of basic customs duty and additional
duty of customs leviable on the inputs or the capital goods respectively and X
denotes the assessable value. [clause (a) of sub-;rule (7) of Role 3].
(b) CENVAT credit in respect of, -;
(i) the additional duty, of excise leviable under section 3 of the Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 (40 of 1978);
(ii) the National Calamity
Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of
2001);
(iii) the Education Cess on excisable goods leviable under section 91 read with section 93 of the Finance (No. 2) Act, 2004 (23 of 2004);
(iv) the additional duty
leviable under section 3 of the Customs Tariff Act, equivalent to the duty of
excise specified under clauses (i), (ii) and (iii);
(v) the additional duty of excise
leviable under section 157 of the Finance Act, 2003 (32 of 2003); and
(vi) the Education Cess on
taxable services leviable under section 91 read with section 95 of the Finance
(No. 2) Act, 2004 (23 of 2004),
shall be
utilized only towards payment of service tax leviable under the Finance Act,
2001, the Education Cess on excisable goods leviable under section 91 read with
section 93 of the said Finance (No. 2) Act, 2004, the additional duty of excise
leviable under section 157 of the said Finance Act, 2003, or the Education Cess
on taxable services leviable under section 91 read with section 95 of the said
Finance (No. 2) Act, 2004, respectively, on any final products manufactured by
the manufacturer or for payment o( such duty on inputs themselves if such
inputs are removed as such or after being partially processed or on any output
service.
Provided that the credit of the Education Cess on excisable goods and the Education Cess on taxable services can be utilized either for payment of the Education Cess on excisable goods or for the payment of the Education Cess on taxable services. [clause (b) of sub-;rule (7) of Rule 3].
Conditions for allowing CENVAT credit. -;Rule 4
The CENVAT
credit in respect of inputs may be taken immediately on receipt of the inputs
in the premises of the provider of output service [sub-;rule (1) of Rule
4].
The CENVAT
credit in respect of capital goods received in the premises of the provider of
output service at any point of time in a given financial year shall be taken
only for an amount not exceeding fifty per cent. of the duty paid on such
capital goods in the same financial year:
Provided
that the CENVAT credit in respect of capital goods shall be allowed for the
whole amount of the duty paid on such capital goods in the same financial year
if such capital goods are cleared as such in the same financial year [clause
(a) of sub-;rule (1) of Rule 4].
The
balance of CENVAT credit may be taken in any financial year subsequent to the
financial year in which the capital goods were received in the premises of the
provider of output service, if the capital goods, other than components, spares
and accessories, refractories and refractory materials, moulds and dies and
goods falling under heading No. 68.02 and sub-;heading No. 6801.10 of the
First Schedule to the Excise Tariff Act, are in the possession of the provider
of output service in such subsequent years [clause (b) of sub-;rule (1) of
Rule 4].
Illustration.
-;A manufacturer received machinery on the 16th day of April, 2002 in his
factory. CENVAT of two lakh rupees is paid on this machinery. The manufacturer
can take credit upto a maximum of one lakh rupees in the financial year 2002-;2003,
and the balance in subsequent years.
The CENVAT
credit in respect of the capital goods shall be allowed to a provider of output
service even if the capital goods are acquired by him on lease, hire purchase
or loan agreement, from a financing company. [sub-;rule (3) of Rule 4].
The CENVAT
credit in respect of capital goods shall not be allowed in respect of that part
of the value of capital goods which represents the amount of duty on such
capital goods, which the provider of output service claims as depreciation
under section 32 of the Income-;tax Act, 1961 [sub-;rule (4) of Rule
4].
The CENVAT
credit shall be allowed even if any inputs or capital goods as such or after
being partially processed are sent to a job worker for further processing,
testing, repair, re-;conclitioning or any other purpose, and it is
established from the records, challans or memos or any other document produced
by provider of output service taking the CENVAT credit that the goods are
received back in the factory within one hundred and eighty days of their being
sent to a job worker and if the inputs or the capital goods are not received
back within one hundred eighty days, the provider of output service shall pay
an amount equivalent to the CENVAT credit attributable to the inputs or capital
goods by debiting the CENVAT credit or otherwise, but the provider of output
service can take the CENVAT credit again when the inputs or capital goods are
received back in the premises of the provider of output service [clause (a) of
sub-;rule (5) of Rule 4].
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 2ervice and the service tax paid or
payable as is indicated in invoice, bill or, a the case may be, challan
referred to in rule 9. [sub-;rule (7 of Rule 4].
Refund
of CENVAT credit. -;Rule 5
There any
input or input service is used in providing output service which is exported,
the CENVAT credit in respect of the input or input service so used shall be
allowed to be utilized by the provider of output service towards payment of, -
service
tax on output service,
and where
for any reason such adjustment is not possible, the manufacturer (but not a
provider of a output service) shall be allowed refund of such amount subject to
such safeguards, conditions and limitations, as may be specified, by the
Central Government, by notification:
Provided
that no refund of credit shall be allowed if the manufacturer or provider of
output service avails of drawback allowed under the Customs and Central Excise
Duties Drawback Rules, 1995, or claims a rebate of duty under the Central
Excise Rules, 2002, in respect of such duty.
The author
is of view that the wording of proviso make it clear that refund be allowed not
only to the manufacturer but also to provider of a output service, however it
appears that there is some omission in the rule which denies the refund to
provider of output service.
For the
purposes of this rule, the words 'output service which is exported' means any
output service in respect of which payment is received in India in convertible
foreign exchange and the same is not repatriated from, or sent Outside, India.
The CENVAT
credit shall not be allowed on such quantity of input or input service which is
used in the exempted services, except in the circumstances mentioned in sub-;rule
(2). [Sub-;rule (1) of Rule 6].
Where a
provider of output service avails of CFNVAT credit in respect of any inputs or
input services, except inputs intended to be used as fuel, and provides such
output service which are chargeable to tax as well as exempted services, then,
the provider of output service shall maintain separate accounts for receipt,
consumption and inventory of input and input service meant for use in the in
providing output service and the quantity of input meant for use in the
exempted services and take CENVAT credit only on that/quantity of input or
input service which is intended for use in providing output service on which
service tax is payable. [sub-;rule (2) of Rule 6].
Notwithstanding
anything contained in sub-;rules (1) and (2), the provider of output
service, opting not to maintain separate accounts, the provider of output
service shall utilize credit only to extent of an amount not exceeding twenty
per cent. of the amount of service tax payable on taxable output service.
[clause (c) of sub-;rule (3) of Rule 6].
No CENVAT
credit shall be allowed on capital goods which are used exclusively in providing
exempted services. [sub-;rule (4) of Rule 6].
Notwithstanding
anything contained in sub-;rules (1), (2) and (3), credit of the whole of
service tax paid on any of the following taxable service shall be allowed
unless such service is used exclusively in providing exempted services:
(i) Consulting Engineer service,
(ii) Architect service,
(iii) Interior Decorator service,
(iv) Management Consultant service,
(v) Real estate agnet service,
(vi) Security agency service,
(vii) Scientific or consultancy service,
(viii) Banking and financial service,
(ix) sub-;clause (zp) of
clause 105 of section 65 is ommited by the Finance (Bill No. 2) Act, 2004 but
incidentally appeared in sub-;rule 5.
(x) Insurance auxiliary service concering
life insurance business,
(xi) Erection, Commissioning or Installation
service,
(xii) Maintenance or repair service,
(xiii) Technical testing and analyzing service,
(xiv) Technical inspection and certification
service,
(xv) Foreign exchange broker service,
(xvi) Construction service,
(xvii) Intellectual property rights service [sub-;rule
(5) of Rule 6].
In other words, if above services are utilized for both taxable and exempted services, the credit of service tax paid shall be allowed for full amount irespective of the fact that some amount has been used for exempted services also.
Manner
of distribution of credit by input service distributor. -;Rule 7
The
concept of input service distributor has been used first time under the law.
"input service distributor" means an office of the manufacturer or
producer of final products or provider of output service, which receives
invoices issued under rule 4A of the Service Tax Rules, 1994 towards purchases
of input services and issues invoice, bill or, as the case may be, challan for
the purposes of distributing the credit of service tax paid on the said
services to such manufacturer or producer or provider, as the case may be.
[clause (in) of Rule 2].
The input
service distributor may distribute the CENVAT credit in respect of the service
tax paid on the input service to its manufacturing units or units providing
output service, subject to the following condition, namely:
(a) the credit distributed
against a document referred to in rule 9 does not exceed the amount of service
tax paid thereon; or
(b) credit of service tax
attributable to service use in a unit exclusively engaged in manufacture of
exempted goods or providing of exempted services shall not be distributed.
It may be
noted that Service Tax Rules, 1994 has also been amended. As per sub-;rule
(2) of Rule 4A of the Service Tax Rules, 1994, every input service distributor
distributing credit of taxable services shall, in respect of credit
distributed, issue an invoice, a bill or, as the case may be, a challan signed
by such person or a person authorized by him, for each of the recipient of the
credit distributed, and such invoice, bill or, as the case may be, challan
shall be serially numbered and shall contain the following, namely:
(i) the name, address and
registration number of the person providing input services and the serial
number and date of invoice, bill, or as the case may be, challan issued under
sub-;rule (1);
(ii) the name, address and the registration
number of the said input service distributor;
(iii) the name and address of the recipient of
the credit distributed;
(iv) the amount of the credit distributed.
Documents and accounts. -;Rule 9
The CENVAT
credit shall be taken by the provider of output service or input service
distributor, as the case may be, on the basis of any of the following
documents, namely:
(a) an invoice issued by
(i) a manufacturer
(ii) an importer,
(iii) an importer from his
depot or from the premises of the consignment agent of the said importer if the
said depot or the premises, as the case may be, is registered in terms of the
provisions of Central Excise Rures,V002;
(iv) a
first stage dealer or a second stage dealer, as the case may be, in terms of the
provisions of Central Excise Rules, 2002; or
(b) a supplementary invoice,
issued by a manufacturer or importer of inputs or capital goods in terms of the
provisions of Central Excise Rules, 2002.
(c) a bill of entry; or
(d) a certificate issued by
an appraiser of customs in respect of goods imported through a Foreign Post
Office; or
(e) a challan evidencing payment of service tax by the person liable to pay service tax under sub-;clauses (iii) and (iv) of clause (d) of sub-;rule (1) of rule (2) of the Service Tax Rules, 1994; or
(f) an invoice, a bill or
challan issued by a provider of moot service in or after the 10th day of,
September, 2004; or
(g) an invoice, bill or
challan issued by an input service distributor under rule 4A of the Service Tax
Rules, 1994. sub-;rule (1) of Rule 91
The CENVAT
credit shall not be denied on the grounds that any of the documents mentioned
in sub-;rule (1) does not contain all the particulars required to be
contained therein under these rules, if such document contains details of
payment of duty or service tax, description of the goods or taxable service,
assessable value, name and address of the factory or warehouse or provider of
input service:
Provided
that the Deputy Commissioner of Central Excise or the Assistant Commissioner of
Central Excise, as the case may be, having jurisdiction over the factory of a
manufacturer or provider of output service intending to take CENVAT credit, or
the input service distributor distributing CENVAT credit on input service, is
satisfied that the duty of excise or service tax due on the input or input
service has been paid and such input or input service has actually been used or
is to be used in the manufacture of final products or in providing output
service, then, such Deputy Commissioner of Central Excise or the Assistant
Commissioner of Central Excise, as the case may be, shall record the reasons
for not denying the credit in each case. [sub-;rule (2) of Rule 9].
The
provider of output service taking CENVAT credit on input or capital goods or
input service, or the input service distributor distributing CENVAT credit on
input service shall take all reasonable steps to ensure that the input or
capital goods or input service in respect of which he has taken the CENVAT
credit are goods or services on which the appropriate duty of excise or service
tax as indicated in the documents accompanying the goods or relating to input
service, has been paid.
Explanation.
-;The provider of output service taking CENVAT credit on input or capital
goods or input service or the input service distributor distributing CENVAT
credit on input service on the basis of, invoice, bill or, as the case may be,
challan received by him for distribution of input service credit shall be
deemed to have taken reasonable steps if he satisfies himself about the
identity and address of the manufacturer or supplier or provider of input
service, as the case may be, issuing the documents specified in sub-;rule
(1), evidencing the payment of excise duty or the additional duty of customs or
service tax, as the case may be, either
(a) from his personal knowledge; or
(b) on the basis of a
certificate given by a person with whose handwriting or signature he is
familiar; or
(c) on the basis Of a
Certificate issued to the manufacturer or the supplier or, as the case may be,
the provider of input service by the Superintendent of Central Excise within
whose jurisdiction such manufacturer has his factory or such supplier or
provider of output service has his place of business or where the provider of
input service has paid the service tax, and where the identity and address of
the manufacturer or the supplier or the provider of input service is satisfied
on the basis of a certificate, the manufacturer or producer or provider of
output service taking the CENVAT credit or input service distributor
distributing CENVAT credit shall retain such certificate for production before
the Central Excise Officer on demand. [sub-;rule (3) of Rule 9].
The CENVAT
credit in respect of input or capital goods purchased from a first stage dealer
or second stage dealer shall be allowed only if such first stage dealer or
second stage dealer, as the case may be, has maintained records indicating the
fact that the input or capital goods was supplied from the stock on which duty
was paid by the producer of such input or capital goods and only an amount of
such duty on pro rata basis has been indicated in tile invoice issued by him.
[sub-;rule (4) of Rule 9].
The
manufacturer of final products or the provider of output service shall maintain
Proper records for the receipt, disposal, consumption and inventory of the
input and capital goods in which the relevant information regarding the value,
duty paid, CENVAT credit taken and utilized, the person from whom the input or
capital goods have been procured is recorded and the burden of proof regarding
the admissibility of the CENVAT credit shall fie upon the manufacturer or
provider of output service taking such credit. [sub-;rule (5) of Rule 9].
The
manufacturer of final products or the provider of output service shall maintain
proper records for the receipt and consumption of the input services in which
the relevant information regarding the value, tax paid, CENVAT credit taken and
utilized, the person from whom the input service has been procured is recorded
and the burden of proof regarding the admissibility of the CENVAT credit shall
lie upon the manufacturer or provider of output service taking such credit.
[sub-;rule (6) of Rule 9].
The
provider of output service availing CENVAT credit, shall submit a half yearly
return in form specified, by notification, by the Board to the Superintendent
of Central Excise, by the end of the month following the particular quarter or
half year. [sub-;rule (9) of Rule 9]. The Government has riot yet notified
any Form for filing of return for availing CENVAT credit
The input service distributor, shall submit a half yearly Statement, giving the details of credit received and distributed during the said half year to the Superintendent of Central Excise, by the end of the month following the half year. [sub-;rule (10) of Rule 9]. Thus, input service distributor only required to submit a statement, and not a return, for giving details of credit received and distributed.
Transfer of CENVAT credit. -;Rule 10
If a
provider of output service shifts or transfers his business on account of
change in ownership or on account of sale, merger, amalgamation, lease or
transfer of the business to a joint venture with the specific provision for
transfer of liabilities of such business, then, the provider of output service
shall be allowed to transfer the CENVAT credit lying unutilized in his accounts
to such transferred, sold, merged, leased or amalgamated business. [sub-;rule
(21) of Rule 10]. However, the transfer of the CENVAT credit tinder sub-;rules
(2) .-;hall be allowed only if the stock of inputs as such or in process,
or the capital goods is also transferred along with the factory or business
premises to the new site or ownership and the inputs, or capital goods, on
which credit has been availed of are duly accounted for to the satisfaction of
the Deputy Commissioner of Central Excise or, as the case may be, the Assistant
Commissioner of Central Excise. [sub-;rule (3) of Rule 10].
Transitional
provision. -;Rule 11
Any amount
of credit earned by a provider of output service under the Service Tax Credit
Rules, 2002, as they existed prior to the 10th day of September, 2004, and
remaining unutilized an that day shall be allowed as CENVAT credit to such
provider of output service under these rules, and be allowed to be utilized in
accordance with these rules. [sub-;rule (1) of Rule 11].
A
manufacturer who opts for exemption from the whole of the duty of excise
leviable on goods manufactured by him under a notification based on the value
or quantity of clearances in a financial year, and who has been taking CENVAT
credit on inputs or input services before such option is exercised, shall be
required to pay an amount equivalent to the CENVAT credit, if any, allowed to
him in respect of inputs lying in stock or in process or contained in final
products lying in stock on the date when such option is exercised and after
deducting the said amount from the balance, if any, lying in his credit, the
balance, if any, still remaining shall lapse and shall not be allowed to be
utilized for payment of duty on any excisable goods, whether cleared for home
consumption or for export. [sub-;rule (2) of Rule 11].
Recovery
of CENVAT credit wrongly taken or erroneously refunded. Rule 14
Where the
CENVAT credit has been taken or utilized wrongly or has been erroneously
refunded, the same along with interest shall be recovered from the provider of
the output service and the sections 73 and 75 of the Finance Act, shall apply
noutatis mutandis for effecting such recoveries. [Rule 14]
Confiscation
and penalty. -;Rule 15
If any person, takes CENVAT credit in respect of input or capital goods, wrongly or without taking reasonable steps to ensure that appropriate duty on the said input or capital goods has been paid as indicated in the document accompanying the input or capital goods specified in rule 9, or contravenes any of the provisions of these rules in respect of any input or capital goods, then, all such goods shall be liable to confiscation and such person, shall be liable to a penalty not exceeding the duty on the excisable goods in respect of which any contravention has been committed, or ten thousand rupees, whichever is greater. [sub-;rule (1) of Rule 15].
In a case,
where the CENVAT credit in respect of input or capital goods has been taken or
utilized wrongly on account of fraud, willful mis-;statement, collusion or
suppression of facts, or contravention of any of the provisions of the Excise
Act or the rules made thereunder with intention to evade payment of duty, then,
the manufacturer shall also be liable to pay penalty in terms of the provisions
of section 11AC of the Excise Act. [sub-;rule (2) of Rule 15].
If any
person, takes CENVAT credit in respect of input services, wrongly or without
taking reasonable steps to ensure that appropriate service tax on the said
input services has been paid as indicated in the document accompanying the
input services specified in rule 9, or contravenes any of the provisions of
these rules in respect of any input service, then, such person, shall be liable
to a penalty which may extend to an amount not exceeding ten thousand rupees.
[sub-;rule (3) of Rule 15].
In a case,
where the CENVAT credit in respect of input services has been taken or utilized
wrongly by reason of fraud, collusion, willful mis-;statement, suppression
of facts, or contravention of any of the provisions of the Finance Act or of
the rules made thereunder with intenium to evade payment of service tax, then,
the provider of output service shall also be liable to pay penalty in terms of
the provisions of section 78 of the Finance Act. [sub-;rule (4) of Rule
15].
Any order
under 5ub-;rule (1), sub-;rule (2), sub-;rule (3) or sub-;rule
(4) shall be issued by the Central Excise Officer following the principles of
natural justice. [sub-;rule (5) of Rule 15].
Supplementary
provision.-;Rule 16
Any
notification, circular, instruction, standing order, trade notice or other
order issued under the CENVAT Credit Rules, 2002 or the Service Tax Credit
Rules, 2002, by the Central Government, the Central Board of Excise and Customs,
the Chief Commissioner of Central Excise or the Commissioner of Central Excise,
and in force at the commencement of these rules, shall, to the extent it is
relevant and consistent with these rules, be deemed to be valid and issued
under the corresponding provisions of these rules.
The
Finance Act, 2002, w.e.f. 16-;8-;2002 has amended section 94 by
inserting clause (ee) in sub-;section (2) of section 94 of the Finance
Act, 1994 vide Notification No. 8/2002-;ST, dated 1-;8-;2002.
The aforesaid amendment has been made with a view to empower the Central
Government to make rules to allow the credit of service tax paid on the
services consumed for providing a taxable service in case where the services
consumed and the services provided fall in the same category of taxable
services.
In
exercise of the powers conferred by clause (ee) of sub-;section (2) of
section 94 of the Finance Act, 1994, as amended by the Finance Act, 2002, w.e.f.
16-;82002, the Government has framed the "Service Tax Credit Rules,
2002" vide Notification No. 14/2002, dated 1-;8-;2002 to give
credit on the service tax paid on the services consumed for providing a taxable
service in case where the services consumed and the service provided fall in
the same category of taxable service. The Service Tax Credit Rules, 2002 come
into force w.e.f. 16-;8-;2002. Thus, for the first time the system of
input credit in service tax has been introduced in limited manner, to make the
service tax a value added tax. The aforesaid Service Tax Credit Rules have been
amended w.e.f. 1-;3-;2003 by the Service Tax Credit (Amendment)
Rules, 2003 [vide Notification No. 1/2003-;ST, dated 1-;32003] with a
view to make some changes like transfer of service tax credit etc. which has
been discussed hereunder and again amended by the Service Tax Credit (Second
Amendment) Rules, 2003, w.e.f. 14-;5-;2003 [vide Notification No.
5/2003-;ST, dated 14-;5-;2003] with a view to allow credit of
service tax paid across all the services. The text of the Service Tax Credit
Rules, 2002 has been reproduced in Division IV.
Amendment made
by the Finance Act, 2003 to allow credit of service paid across all services
The
Finance Act, 2003 has amended section 94 by inserting clause (eee) in sub-;section
(2) of the said section, with a view to empower the Central Government to make
rules to allow the credit of service tax paid on the services consumed or
duties paid or deemed to have been paid on goods used for providing taxable services
irrespective of the fact that input and output services fall under different
categories. The Finance Minister in his budget speech said, "Last year
credit of service tax on input services were extended for payment of service
tax, provided the input and the -; final services fell within the same
category, I propose to extend this facility across all services. Thus, the
credit will now, be available even if the input and the final services fall
under different categories" (vide para 171 of his speech). Thus, to make
Service Tax a true Value Added Tax, the Government has decided to give credit
of service tax or central excise duties paid on the service consumed or goods
used while providing output taxable service. As per the 'Memorandum Explaining
the Provisions in the Finance Bill, 2003', it was stated that such extension
shall be effective only after the enactment of the Finance Bill, 2003, and to
provide credit of service tax paid across all services with the date of
enactment of the Finance Bill, 2003 the existing Service Tax Credit Rules, 2002
have been amended w.e.f. 14-;5-;2003.
Point regarding Notification No. 5/2003
regarding Service Tax Credit (Second Amendment) Rules, 2003
The
existing Service Tax Credit Rules, 2002 have been amended by the Service Tax
Credit (Second Amendment) Rules, 2003, w.e.f. 14-;5-;2003 [vide
Notification No. 5/2003-;ST, dated 14-;5-;2003] with a view to
extend the service tax credit facility across all services even if input and
the final services fall under different categories, The aforesaid Notification
No. 5/2003 begins with the words "In exercise of the powers conferred by
clause (ee) of sub-;section (2) of section 94 of the Finance Act, 1994 (32
of 1994), the Central Government hereby makes the following rules, further to
amend the Service Tax Credit Rules, 2002, except as respect things done or
omitted to be done before such amendment". In fact, it appears that in the
said Notification there was a typographical error, and instead of 'clause
(eee)' the words 'clause fee)' were mentioned. As mentioned above, aforesaid
clause (ee) empowered the Central Government only to make the Credit Rules when
both input and output services fall in the same category of taxable service,
whereas, as mentioned above, clause (eee) is inserted by the Finance Act, 2003,
w.e.f. 14-;5-;2003, which empowered the Government to make the Rules
for credit of service tax paid even if input and final services fall under
different categories or even to allow credit for duties (i.e. Central Excise)
paid or deemed to have been paid. The conigendum dated 9th June 2003 [F. No.
B3/6/2003-;TRU] has been issued to rectify the aforesaid error in the said
Notification and now the words "clause (ee) of sub-;section (2)"
has been replaced with the words "sub-;section (2)".
Reason for introduction of scheme of credit of service tax
paid
Earlier,
while explaining the scope of many services the Government had clarified that
in case of sub-;contracting of work by one service provider to another
service provider of same service category, the sub-;contractor will not be
required to pay service tax on the bills raised by him. The intention of the
Government is not to tax the same service at many stages. But, in some cases
because of peculiar nature of taxable services, the tax was being charged at
more than one stage on same category of taxable service. For instance, in case
of photography services, a photography studio charges tax from customers and at
the same time that studio also pays tax to the photo colour lab for the film
development, The aforesaid rules have been framed with the aim to provide
relief in all such cases. In this case, studio will be entitled to claim credit
in respect of service tax paid to the photo colour lab. Now, w.e.f. 14-;5-;2003,
the amendment to the existing rules have been made with the aim to provide
relief even where sub-;contract is under different categories.
The rule
and sub-;rule referred to hereinafter unless otherwise stated are the rule
and sub-;rule of the Service Tax Credit Rules, 2002 as amended time to
time.
Conditions
for availing service tax credit
(1) Service Tax Credit
(a) Credit under the same
category of services (w.e.f. 16-;8-;2002): An output
service provider shall be allowed to take credit of the service tax paid on
such input service, where input service falls in the same category of taxable
service as that of output service, for which invoice or bill or challan is
issued on or after 16 August, 2002 [clause (a) of sub-;rule (1) of Rule
31.
(b) Credit under different
category of services (w.e.f. 14-;5-;2003): As per the
amendment made in Rule 3, service tax credit shall also be allowed in cases
other than those covered in clause (a), i.e. where input and output services
are falling under different categories. Now, w.e.f. 14-;5-;2003, an
output service provider shall be allowed to take credit of service tax paid on
such input service for which invoice or bill or challan is issued on or after
the 14 May, 2003 [clause (b) of sub-;rule (1) of Rule 3]. W.e.f. 1-;3-;2003,
it is provided that the output service provider shall be allowed to take such
credit, on or after the day on which he makes payment of the value of input
service and the service tax paid or payable as indicated in invoice or bill or
challan [proviso to sub-;rule (1) of Rule 3].
§
The input service has been defined in clause (c) of sub-;rule
(1) of Rule 2. That is:
"input
service" means any taxable service received and consumed by a service
provider in relation to rendering of output service;
§
The output service has been defined in clause (a) of sub-;rule
(1) of Rule 2. That is:
"output
service" means any service rendered by the service provider to a customer,
client, subscriber, policy holder or any other person, as the case may lie.
Whether credit can be availed for service tax on services
consumed in manufacturing of exported goods?
No. The
Government in its Circular No. 56/5/2003, dated 25 April, 2003 (appended as
Annexure IX in the 'Exemption from whole of Service Tax -; Some cases')
has clarified that "service consumed/ provided in India in the manufacture
of goods which are ultimately exported, no credit of service tax paid can be
availed or reimbursed at present as inter-;sectoral tax credit between
services and goods are not allowed". It may be noted that as mentioned in
the beginning, now by the Finance Act, 2003, section 94 has been amended,
therefore, now Central Government is empowered to frame the Rules for inter-;sectoral
tax credit.
Whether credit can be availed for
service tax paid as a receiver of service tax?
Yes. In
case of a non-;resident service provider who does not have any office in
India, the service receiver in India is liable to pay service tax. In a point
raised before the Government -;how such receiver would avail the service
tax credit because as per Rule 5, service tax credit shall be availed on the
basis of an invoice issued by the service provider of input service, the
Government in Para 2.9.2 of its 6rcular No. 59/8/2003, dated 20-;6-;2003
(appended as Annexure I) has clarified, "As there is no bar under service
tax law on the service tax payer to take the same amount back as credit, the
service receiver after having paid the service tax on behalf of the non-;resident
service provider, can take credit of the same on the basis of document/ bill/
invoice under which he paid the service tax".
(2) Two services shall be
deemed to be falling in the same category of taxable service, if the input
service and output service fall in the same sub-clause of clause (105) of
section 65 of the Act [sub-;rule (2) of Rule 3].
Provided
that the taxable services defined in sub-;clauses (zm) and (zp) of clause
(105) of section 65 of the Act shall be deemed to be falling within the same
category [proviso to sub-;nde (2) of Rule 3].
(i) A photography studio in
course of providing photography services avails service of processing labs for
developing and processing of exposed film and printing of exposed film and
printing of photographs. In this case service provided, by the colour lab to
photography studio and by the photography studio to a customer, both fall in
the same category of service i.e. photography service. Therefore, photography
studio is entitled to take credit of service tax paid by the processing lab.
(ii) A stevedore hires dock
labour from the port trust and provides such labour to his client. In this case
the service provided, by the port trust to stevedore and by stevedore to
client, both fall in the category of port service. Therefore, stevedore is
entitled to make credit of service tax paid by the port trust.
Illustration of services not falling in the same category of service, which were not eligible for tax credit earlier, now allowed to take tax credit w.e.f. 14-;5-;2003
(i) An advertising agency
may avail services of a photography studio and/or a sound recording studio
and/or a video-;tape production agency during the course of rendering
service to its client. Service provided by the photography studio or the sound
recording studio or the video-;tape production agency, as the case may be,
does not fall in the category of advertising agency service. In this case, now,
w.e.f. 14-;52003, the advertising agency shall be entitled to take the
credit of services paid to aforesaid service provider for which invoice or bill
or challan is issued on or after 14-;5-;2003. However, it may be
noted that illustration given in this regard in the Service Tax Credit Rules,
2002, still has not been changed, which needs to be changed as consequence of
the amended in the Credit Rules to allow credit of service tax paid across all
the services.
(3) Where output service is
either exempted from whole of the service tax or is not taxable, no service tax
credit shall be allowed on input service received and consumed in relation to
rendering of such output services, except in the circumstances mentioned in the
sub-;rules (4) and (5) of Rule 3 [sub-;rule (3) of Rule 3].
(4) Where a service provider
renders output services which are chargeable to service tax as well as exempted
services or non taxable services, then to avail credit on any input service, he
has to maintain separate accounts for receipt and consumption of input service
for each such purpose. In that case, service provider shall take credit only on
that portion of input service, which is intended for use in relation to
rendering output services, which are chargeable to service tax [sub-;rule
(4) of Rule 3].
(5) Where service provider
opts not to maintain separate accounts as discussed in above point (4) [i.e.
under sub-;rule (4)], he shall be allowed to utilize service tax credit
for payment of service tax on any output service only to the extent of an
amount not exceeding 35% of the amount of service tax payable on such output
service [sub-;rule (5) of Rule 3].
(6) Service tax credit on
the service provided in relation to telephone connection shall be allowed only
in respect of such telephone connections, which are installed in the premises
from where output service is provided [sub-;rule (6) of Rule 3]. This sub-;rule
indicates that service tax credit in respect of tax paid on fixed telephone
connections shall be allowed as the words "installed in the premises"
are used in the said sub-;rule, whereas mobile phone and WLL (M) phones
are not "installed in the premises".
In a point
raised before the Government whether credit of service tax on telephone
connection would be admissible on telephone sets installed only in business
premises, the Government in para 2.8 of its Circular No. 59/8/2003, dated 20-;6-;2003
(appended as Annexure 1) has clarified, "The answer is in the affirmative,
and credit will be allowed only on telephone sets installed in the business
premises. It was also clarified that "mobile phone are not covered",
therefore, no credit shall be available for the service tax paid in respect of
mobile telephone connection even if it has been used for providing the taxable
service.
(7) The service tax credit
availed on input service may be utilised for payment of service tax on the
output service [sub-;rule (1) of Rule 4].
Service
tax credit shall be utilized only for payment of service tax on output service
and not for Interest and penalty (refer to Note No. 2 of 'Form ST-;3)
(8) w.e.f. 1-;3-;2003,
it is provided that while paying service tax on the output service, the service
tax credit shall be utilised only to the extent such credit is available on the
last day of a month, for payment of service tax relating to the month or in
case where the assessee is an individual or proprietary firm or partnership firm,
to the extent such credit is available on the last day of the quarter for
payment of service tax relating to the quarter [proviso to sub-;rule (1)
of Rule 4].
(9) Refund of service tax
credit available on input service shall not be allowed under any circumstances
[sub-;rule (2) of Rule 4].
(10) The service tax credit
shall be availed on the basis of an invoice or bill or challan issued by the
service provider of input service on or after 16th day of August, 2002 [sub-;rule
(1) of Rule 5].
(11) The output service
provider availing service tax credit shall take reasonable steps to ensure that
the input services in respect of which he has availed the service tax credit
are the services on which the service tax has been paid [sub-;rule (2) of
Rule 5].
§
The output service provider availing service tax credit
shall be deemed to have taken reasonable steps, if he satisfies himself about
the identity and address of the input service provider, issuing the documents
on the basis of which the service tax credit is availed and that the details
regarding description and value of input service received by him has been
furnished correctly in the documents [Explanation to sub-;rule (2) of Rule
5].
(12) The burden of proof
regarding the admissibility of service tax credit shall lie upon the person
taking such credit [sub-;rule (3) of Rule 5].
Transfer
of service tax credit
The
aforesaid Rules have been amended w.e.f. 1-;3-;2003 with a view to
provide transfer of service tax credit, in the case of shifting or transfer of
establishment by an output service provider or on account of sale, merger,
amalgamation, lease or transfer of establishment to a joint venture, then, the
output service provider shall be allowed to transfer the service tax credit
lying unutilised in his account to such transferred, sold, merged or
amalgamated establishment [Rule 4A].
The output
service provider availing service tax credit shall submit to the Superintendent
of Central Excise, a return in the Form under Service Tax Credit Rules, 2002
(as reproduced below) along with Form ST-;3 of the Service Tax Rules, 1994
[sub-;rule (4) of Rule 5].
(See sub-;rule
(4) of rule 5)
(For the
period from
.. to
.)
Input service
|
SI. No. |
Date and no. of document on which credit is valid |
Details of input service provider |
Details of input service |
|||
|
|
|
ST regd. No. |
Address |
Description |
Value |
Credit taken |
|
|
|
|
|
|
|
|
Service tax credit
|
Opening
balance |
Credit
taken |
Credit
utilized |
Closing
balance |
|
|
|
|
|
Place: Name
and signature of the assessee or
Date: his
authorised representative.
Maintenance
of documents and accounts for availing the service tax credit
(1) As per sub-;rule
(4) of rule 3 of the aforesaid Rules, where a service provider renders output
services which are chargeable to service tax as well as exempted services or
non taxable services, then to avail credit on any input service, he has to
maintain separate accounts for receipt and consumption of input service for
each such purpose to get the credit of tax paid on input service which is
utilized to render taxable output services otherwise as per sub-;rule (5)
of rule 3, there is cap of availing credit to the extent of 35% of the amount
of service tax payable on such output service.
(2) As per sub-;rule
(3) of rule 5 of the aforesaid Rules, the output service provider availing
service tax credit shall maintain proper records in which following information
is given:
(i) Serial Number and date of document on
which service tax credit is availed;
(ii) Service tax registration number and name
of the input service provider,
(iii) Description and value of input service;
(iv) Service tax credit availed;
(v) Service tax credit utilized for payment
of service tax on output service.
Though,
the Government has not prescribed the proforma, to maintain the aforesaid
details, but to avail the credit, it is necessary foe the assessee to maintain
a register, which gives all the aforesaid details.
(3) As per sub-;rule (1)
of rule 5 of the aforesaid Rules, the service tax credit shall be availed on
the basis of an invoice or bill or challan issued by the service provider of
input service, in which following particulars must be given:
(i) Serial Number of document;
(ii) Date of issue;
(iii) Description and value of the input
service;
(iv) The service tax paid/payable;
(iv) Service tax registration number and
address of input service provider.
Even the
Government has not prescribed the specific requirement related to bill/invoice
issued by the service provider in respect of taxable service rendered by him,
but, it has become necessary, to issue the bill/ invoice which must contain the
above particulars, to facilitate the output service provider to get the credit
in respect of service tax paid as per the requirements of the aforesaid Rules.
Recovery
of service tax credit
The
Government has amended Rule 6 w.e.f. 9-;7-;2004, vide Notification
No. 6/2004 to remove the anomaly in Rule 6. Now, after the amendment, no
recovery of service tax credit can be made when "service tax has not been
paid by the input service provider for any reason, whatsoever", the above
words have been omitted from the Rule 6.
Now, where
the service tax credit has been wrongly availed or utilized such credit along
with interest shall be recoverable from the person availing such service tax
credit and the provisions of sections 73, 75, 76 and 78 of the Act shall apply
mutatis mutandis for effecting such recoveries [Rule 6]. Thus, now, the
provisions in regird to liability of the person availing service tax credit
have been aligned with CENVAT credit scheme under the Central Excise Act.
The
Government in its Circular F. No. B.11/1/2002-;TRU, dated 1-;8-;2002,
regarding the instructions for tax on 10 new services in the year 2002, stated,
"in the actual term, he (i.e. input service provider) did not pay this tax
(i.e. service tax) to the Government for any reason, whatsoever. In that event
the output service provider will have to reverse the credit. He can not take
this plea that the credit is due to him as he was not at fault". Now after
the aforesaid amendment in the Rules, aforesaid clarification has become
redundant.
Prior to
the aforesaid amendment, the author had pointed out to the Government that Rule
6 is contrary to the explanation given in sub-;rule (2) of Rule 5, in
which inter alia it is stated that for availing the service tax credit, the
output service provider should satisfy himself about the identity and address
of the input service provider. Whereas, as per Rule 6, if input service
provider does not pay the service tax for any reason, it shall be recovered
along with the interest from the output service provider availing the credit,
even though he has no control over the input service provider. In the author's
view, Rule 6 was not only contrary to the aforesaid explanation of Rule 5 but
also unjust and very harsh.
Sub-;contractor is liable to pay service tax
after the introduction of the Service Tax Credit Rules
In case of
sub-;contracting of work by one service provider to another service
provider in the same category of service, the tax is not required to be paid by
the sub-;contractor. But, where sub contract of same category of taxable
service was charging service tax like in case of photography service by photo
colour lab from the photography studio, no credit was available to such
photography studio for the service tax charged by colour lab, however, the
position in this respect has been significantly changed with the introduction
of the "Service Tax Credit Rules, 2002",
While
explaining the scope of some services like 'Courier agency's service', 'Custom
house agent's service', 'Rent-;a-;cab scheme operators service',
'Market research agency's service', 'Architect's and Interior decorator's
services', the Government had clarified that in case of sub-;contracting
of work by one service provider to another service provider of same service
category, for instance, work is sub-;contracted by one architect to
another architect, in this case, the subcontractor will not be required to pay
service tax on the bills raised by him. The service tax will be payable by the
service provider who provides the actual service to the client and raises the
bill to the client. In view of the aforesaid amendment and the introduction of
the scheme of the service tax credit, the subcontractor may charge the service
tax from the main contractor, and the main contractor in this case shall be
eligible to get credit of service tax paid to subcontractor subject to
fulfilment of all the requirements mentioned in the 'Service Tax Credit Rules,
2002".
It may be
noted that after the introduction of scheme of the service tax credit, the
Government has not clarified that whether sub-;contractor must charge the
service tax from the main service provider and main service provider should
take the credit for the service tax charged by the sub-;contractor. The
Central Board of Excise and Customs in answer to question no. 2.3 under the
'Maintenance and Repair Service' of the 'Frequently asked questions on Service
Tax' issued in October 2003 has stated, "the sub-;contractor need not
take a registration under Service Tax. In all such cases, Service Tax is to be
paid by main service provider" and in answer to question no. 5.1 under the
'Sound Recording Services' it is stated, "the lending/hiring of
Vided/Sound Recording equipment is in the nature of Sub-;contracts and
because the Sub-;contractors are not providing the services to the
customers directly, they are not required to pay service tax". Therefore,
sub-;contractor may take the shelter of the aforesaid
Circulars/clarifications and need not take registration under Service Tax and
to pay service tax.
While
explaining the scope of some services like 'Market research agency's service',
the Government had clarified that in case of sub-;contracting of work by
one service provider to another service provider of different service category
for instance where one category of service provider say 'advertising agency'
subcontracts the work to another category of service provider say 'Market
research agency', in this case, sub-;contractor (in the instant case
'market research agency') shall also be liable to pay service tax, but, now,
w.e.f. 14-;5-;2003, in this case, the main contractor of different
category of service (i.e. 'advertising agency') shall be eligible to get credit
of service tax paid to sub-;contractor (i.e. 'market research agency')
subject to fulfilment of all the requirements mentioned in the "Service
Tax Credit Rules, 2002".
Some
doubts and clarification regarding Service Tax Credit
(a) Whether service credit
on indirect input service like securities service, audit, etc. is available?
Yes. In
response to question no. 8.1 of the 'Frequently asked questions on Service Tax'
issued in October 2003 -; Whether credit of Service Tax is available for
all the input services used?, the Central Board of Excise and Customs has
answered that, "Yes. An output service provider is allowed to avail
Service Tax credit of the Service Tax paid on all input services". As per
the definition given, "input service means any taxable service received
and consumed by a service provider in relation to rendering of output
service" [Rule 2 (1)(c)]. The term 'in relation to' is a term, which might
have a direct significance as well as indirect significance depending on the
context Doypack System Private Limited v Union of India (1988) 36 ELT 201 (SC).
Therefore, it is not required that service tax credit is available only for
those services which have been directly used in output service.
(b) Whether the assessee
taking credit under sub-;rule (5) of Rule 3 can utilized the balance 65%
credit?
No. As per
sub-;rule (5) of Rule 3, when assessee does not maintain the separate
account, "he shall be allowed to utilize service tax credit for payment of
service tax on any out put service only to the extent of an amount not
exceeding thirty-;five per cent of the amount of service tax payable on
such output service". Thus, as per rule, utilization of credit is
restricted to 35% of the service tax payable on output service, in other words,
balance 65% credit cannot be utilized by the assessee therefore it shall be
lapsed.
In regard
to ambiguity in the provisions of Rule 3(5), the Board in its Circular No.
77/7/2004-;ST, dated 10th March, 2004 (appended as Annexure II) has
clarified that "input service tax credit can be utilized only to the
extent of 35% of the total service tax payable on all the taxable output
services".
(c) Whether option of taking
credit under rule 3(4) [i.e. 100%] and rule 3(5) [i.e. 35%] can be adopted
simultaneously on selective input service?
There may
be a case where an assessee may be in a position to maintain separate records
of consumption of one or more input service but not in respect of some other
input service, the question may be raised whether in this case both the options
available for taking credit can be followed different services as per the
wish/choice of the assessee. As per the Service Tax Credit Rules, there is no
specific provision for prohibiting the service provider to take service tax
credit for one or more input service under sub-;rule (4) of rule 3 and
take service tax credit for some other input service under sub-;rule (5)
of rule 3.
(d) Whether option of taking
credit under rate 3(4) [i.e. 100%] and rule 3(5) [i.e. 35%] can be changed in
successive month or quarter?
There may
be a case where an assessee may take the service tax credit under sub-;rule
(5) of rule 3 but would like to switch over to take service credit under sub-;rule
(4) of rule 3, the question may be raised whether in this case, assessee can do
so, if yes, whether any permission is required. As per the Service Tax Credit
Rules, there is no specific provision that the service provider must
consistently follow the same method of taking service tax credit in successive
month or quarter, as the case be, therefore, there is no bar to switch over to
another method for taking service tax credit given under Service Tax Credit
Rules, without seeking the permission from the Department
(e) Separate Registration for different
locations-;inter location relation to input service
All Where
one bill is raised for input service but such service is consumed at various
locations and assessee is registered at various places, a question may be
raised whether service tax credit can be claimed in such case. In this case, in
view of author, credit can be claimed for service tax paid on input service
consumed at different locations on the basis of actual use of input service at
each location provided assessee has sufficient documentary proof to satisfy his
assessing officer for the actual consumption of input service at each such
location. As per sub-;rule (3) of Rule 5, the burden of proof regarding
the admissibility of service tax lies upon the person taking such credit.
(f) Many taxable services and Inter service
relation to input service
Where
service provider renders many taxable services and input services relate to all
such taxable output services, a question may be raised whether service tax
credit can be claimed in such case. In this case, in view of author, one to one
relation of input and output service is not necessary, therefore, service tax
credit can be claimed in respect of all the input services received or consumed
in relation to rendering of output service. It may be noted that now assessee
is allowed to file single return all the taxable service rendered by him,
therefore, in view of facility of single return, assessee can claim the credit
for service tax paid on all the input service which may have been consumed for
more than one taxable service rendered by the assessee.
(g) Centralized Registration
at one place in terms of Rule 4(2) & (3A) but input service consumed at
different locations
Assessee
is allowed to take single registration for all its premises if he has
centralized billing system or centralized accounting system. In such case a
question may be raised whether service tax credit can be claimed for the
service tax paid on the input service used/consumed at a place for which centralized
registration is obtained. In view of the author, in such cases, credit could be
claimed for all input services consumed at different locations if such input
services have been used/consumed in relation to rendering of output service. In
fact, when assessee is liable to pay service tax for all the taxable services
rendered for these premises, for which centralized registration is obtained, in
such cases, assessee is entitled to claim service tax credit for the service
tax paid on the input services used in all such locations and such credit can
be claimed at the place where centralized registration is obtained.
(h) Input service used for
rendering output services as well as for manufacturing/trading of goods
Where
input services have been used only in trading or manufacturing activities, it
could not be regarded as services have been used in relation to rendering of
output service, therefore, service tax credit in such case will not be
available, as discussed earlier, the Government has clarified that as at
present, inter-;sectoral tax credit between services and goods are not
allowed. Conversely, there may be a case when input services might have been
used for providing both trading or manufacturing activities and rendering of
output services, in such a case, in view of author, unless separate records are
maintained which shows how much input service has been used for rendering of
taxable service, no credit of service tax paid on input service is available,
further, in such case, sub-;rule (5) of Rule 3 of the Service Tax Credit
Rules, 2002 will not be applicable. As sub-;rule (5) of Rule 3 ibid is
applicable only when 'input service' are consumed in rendering of 'output
service', but where 'input service', has also been used in relation to output
service' and has also been used in manufacturing/ trading of goods, aforesaid
sub-;rule will not apply hence no credit can be claimed in respect of
service tax paid on such input service
(i) How to claim service
tax credit where value of service tax and service tax paid on input service is
less than as indicated in the bill/invoice of input service?
As per
proviso to sub rule (1) of Rule 3, the output service provider shall be allowed
to take credit of service tax paid on input Service, on or after the day on
which he makes payment of the value of input service and the service tax paid
or payable as indicated in invoice or bill or challan. Therefore, the input tax
credit is not claimable on accrual basis. However, in view of the author, if in
such cases, the payment for input services is made in installments then input
credit will be allowed on the proportion of the amount of service tax paid that
is included in the installment.
Clarification
on the scope of the term for levy of service tax
[Circular
No. 59/8/2003 [F. No. B3/7/2003-;TRU], dated 20-;6-;2003,
relevant extracts]
2.8 Credit of service tax
paid on telephones
In regard
to credit of service tax on telephone connection, queries have been raised as
to whether service tax credit would be admissible on telephone sets installed
only in the business premises. The answer is in the affirmative, and credit
will be allowed only on telephone sets installed in the business premises.
Mobile phones are not covered.
2.9.2 In case of a non-;resident
service provider who does not have any office in India, the service receiver in
India is liable to pay service tax. A doubt bar, been raised as to how such
receiver would avail the service tax credit. As per the existing law, in such
cases service receiver is required to take registration, to pay service tax and
to comply with other procedural formalities. As there is no bar under service
tax law on the service tax payer to take the same amount back as credit, the
service receiver after having paid the service tax on behalf of the non-;resident
service provider, can take credit of the same on the basis of document/
bill/invoice under which he paid the service tax.
Clarification
on ambiguity in the provisions of rule 3(5) of the Service Tax Credit Rules, 2002
-; Regarding
An issue
has been raised seeking clarification on the ambiguity in the provisions of
rule 3(5) of the Service Tax Credit Rules, 2002 which reads that 'in case the
service provider opts not to maintain separate accounts of input service meant
for consumption in relation to rendering of such output service which are
chargeable to service tax as well as exempted services or non-;taxable
services, he shall be allowed to utilize service tax credit for payment of
service tax on any output service only to the extent of an amount not exceeding
thirty five percent of the amount of service tax payable on such output
service'.
2. It is to clarify that
input service tax credit can be utilized only to the extent of 35% of the total
service tax payable on all the taxable output services.
3. The field formations may suitably be
informed.