Pradeep Jain - Chartered Accountant

Query

(rengaraj) Posted On: 11 May, 2014

Dear Sirji, Wishes to you for the excellent services rendered to the readers and netizens. Kindly clarify the following query. A Public limited company is registered with excise dept and paying excise duty and availing only cenvat on goods (inputs. The company is registered with service tax dept with centralised RC mainly for C&F and warehousing operations and avails input services of all the branches including excise unit in discharging output service tax. As limited company, they are paying reverse charge for almost all the services listed in the notification. Now the question is, what are the input services they are eligible to claim from the following reverse charge services paid by them by cash under separate challan. 1) advocate fees 2) manpower supply for production of excisabale and non-excisable 3) rent a cab service 4) works contract service 5) Directors sitting fees etc., 6) GTA inward and outward 7) import services -paid in foreign exchange. Regards,

A manufacturer or service provider is eligible for availing Cenvat credit of service tax paid on his input services, excise duty paid on his inputs and excise duty paid on the capital goods. Thus whether the credit of any service can be availed needs to evaluated by judging whether a service falls under the definition of input services or not. The credit of services covered under Reverse charge mechanism can be claimed in the following manner: 1) Advocate fees: Credit can be claimed provided it is wholly used for providing output service or used in manufacture of final product. 2) Manpower supply: Credit can be claimed only on the manpower supply used for production of EXCISABLE goods or providing taxable output service. 3) Rent a cab: Credit cannot be claimed as it is specifically excluded from the definition input services 4) Works contract service: Credit can be claimed on all works contract except in the following situation: • construction or execution of works contract of a building or a civil structure or a part • repair and maintenance related to a motor vehicle which is not a capital goods 5) Director’s sitting fees: Credit can be claimed as it is wholly related to business purposes and this service is not excluded from the definition of input services. 6) GTA inward and outward: Credit can be claimed on GTA inward if it is wholly related to business purposes. But there is dispute on GTA outward. The definition says that freight paid upto place or removal is allowed. The CBEC has issued circular that the credit will be allowed if three conditions are satisfied viz. the agreement is FOR delivery, the burden of intransit loss is on consignor and lastly, the excise duty is paid on price which includes freight also. This view was also affirmed by Punjab and Haryana High Court but the latest Kolkatta High Court has given the contrary view. Hence the issue is not settled for credit on outward freight. 7) Import services -paid in foreign exchange: Credit can be claimed as it falls in the definition of "input service" and input service is used for providing output service.

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