Service providers who are not manufacturers of goods, can avail service tax credit as per the following broad scheme:--
(a) Credit on capital goods used for providing service
Service providers can avail service tax credit on capital goods used by them in their premises for providing any service. For this purpose, capital goods would mean--
(i) all goods falling under Chapters 82, 84, 85, 90, 6805, grinding wheels and the like and parts thereof, falling under heading 6804 of the First Schedule to the Central Excise Act.
[These cover mainly varies types of machineries, electrical machinery/equipments abrasive powders, grinding wheels, optical, photographic and surgical instruments; reference may be made to Central Excise Tariff for details]
(ii) pollution control equipment;
(iii) components/spares/accessories of the capital goods specified in (i) above;
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipe fittings thereof;
(vii) storage tank;
(viii)motor vehicles registered in the name of the service provider who is engaged in rendering services of courier, tour operating, rent-a-cab scheme, cargo handling, dry cleaning, health and fitness.
Thus, a tour operator can avail Cenvat credit on Air-conditioners, Televisions, VCRs, CD players etc. used for rendering the output service. So also computers used by any service provider is eligible for taking input service credit. Each service provider has to go through the list of capital goods in the Excise Tariff and determine whether the capital goods are eligible for taking credit.
(i) Credit on capital goods to be taken 50% in the first year
Capital goods credit can be taken only to the extent of 50% of the duty paid in the year (financial year) of receipt. The balance 50% of the credit can be taken only in the subsequent financial year. Excise duty and Education cess should be separately accounted.
(ii) Credit for capital goods taken on lease, loan/H.P. etc.
Capital goods credit can be availed even where they have been purchased on loan, hire-purchase or lease from a financing company.
(iii) Depreciation not to be claimed as income tax deduction on the duty portion
In respect of capital goods, on which credit is taken, the service provider should ensure that on the duty element taken as credit, no depreciation under the Income Tax Act, is claimed.
(iv) Capital goods not to be used exclusively in exempted services
No capital goods credit would be available if capital goods are used exclusively in providing an exempted service.
(v) Removal of capital goods from the premises
When capital goods are removed from the premises of the service provider, duty credit originally taken must be reversed/paid back. But if the capital goods are brought back within 180 days, no such reversal of credit is required. With the permission of the Deputy Commissioner, the capital goods can be brought back beyond 180 days also. Removal would also include sale of capital goods, in which case, the credit taken initially must be reversed.
(vi) Credit of duty on motor vehicles used as capital goods
Credit of excise duty paid on motor vehicles can be availed only by courier agency, tour operators, rent-a-cab scheme operator, cargo handling agency goods transport agency, outdoor caterer and pandal and shamiana contractors.
Credit for excise duty paid on goods used in providing service by a service provider
This is a new benefit extended under the Cenvat Credit Rules, 2004. Service providers can avail excise duty paid on capital goods used by them in previding the service. This has been explained in para 9.16.1(a). This apart, service providers can further avail credit of excise duty on goods used in providing the service by them. For example an Engineer providing maintenance service can use duty paid parts/components etc in rendering the service. Accordingly the following salient features need to be noted in this regard:--
(a) Nature of goods on which credit can be taken
A service provider can take credit on all goods (called imputs) except Light Diesel Oil, High Speed Diesel Oil, Motor Spirit (Petrol) and Motor Vehicles used for providing any output service. However, in respect of certain specified services excise duty paid on motor vehicles have been allowed for the purpose of taking credit vide para 9.16.1(vi) for details.
(b) Goods to be used for providing output service
Goods on which credit is taken must be used for providing the output service. For example, the photographic film purchased and used by a photographer can be said to be goods used for providing photography service. Similarly, paints, varnishes, wood, glass, steel, aluminium articles may be used by the interior decorator in providing the Interior Decorator service. Thus credit can be availed on the excise duty paid on these goods by the interior decorator. Similarly, Security Agencies may be using uniforms (apparels, hats, etc.) in providing security services. If these apparels are excise duty paid, such excise duty paid on the apparels can be taken as Cenvat credit by the service provider.
(c) Goods (inputs) should be used in providing service
The only condition for availing inputs (goods) credit is that the goods should be used for providing the service and nothing more.
(d) Goods (inputs) to be excise duty paid - nature of documents required for taking credit
Excise duty paid on the goods should be vouched by the Excise Invoice issued by a manufacturer or a first stage or a second stage dealer, or an invoice issued by the importer or depot or agent of the importer. If goods are imported directly by the service provider, then the Bill of Entry would be the relevant document. In the case of imported goods, only the countervailing duty (equal to excise duty payable) can be taken as credit.
(e) Credit can be taken even before payment for the goods (inputs) has been made
Once the goods have been purchased, and proper Excise Invoice/Bill of Entry/Dealer Invoice as explained in (e) above is obtained, credit can be taken immediately. There is no need to wait for the payment to be made for the goods before taking the credit. This is a very important aspect to be taken note of. Credit can be taken on the basis of duplicate/original of the Excise Invoice, though duplicate copy of the invoice which is sent along with the transport would be more ideal.
(f) Goods (inputs) can be sent out for job work
Inputs (goods) can be sent out for job work for further processing or for test, repair etc. under a returnable challan. The processed goods should be received back within 180 days.
(g) Full credit can be taken on receipt of goods in the premises
Full credit of duty can be taken on the excise duty paid on the goods used in providing the service immediately on receipt of the goods.
(h) Nature of duties which can be taken as credit
The following duties of excise paid on the goods can be taken as credit:--
(i) Basic Excise Duty (First Schedule to the Central Excise Tariff Act)
(ii) Special Duties of Excise (Second Schedule to Central Excise Tariff Act)
(iii) Additional Duties of Excise (Textile & Textile Articles)
(iv) Additional Duties of Excise (Goods of Special Importance)
(v) National Calamity Contingency Duty
(vi) Education Cess
(vii) Countervailing Duty on imported goods
(viii)Additional Duty of Excise levied under section 157 of the Finance Act, 2003.
(ix) Cess paid on excise duty
Credit so taken can be utilized only for payment corresponding duties. National calamity contingency duty paid on goods can be taken as credit separately, but since there is no corresponding duty leviable on services; therefore NCCD credit would be only a book entry and would be of no use. But credit of education cess paid on goods can be utilised to pay only education cess payable on output service.
(i) Use of inputs (goods) both in taxable or non-taxable service
Goods on which credit is taken are to be used in taxable services only. If goods are used commonly for taxable or non-taxable services then separate accounts must be maintained and it would be shown that on goods which are used for exempted services, no credit has been taken. If separate records are not maintained then credit can be taken on all goods in full but the utilisation of the credit would be restricted to 20% of the actual service tax payable on the output service.
All other provisions are the same as explained generally in para 9.16.1.
Service tax credit for manufacturers of goods
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