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When CENVAT meets Service Tax

CA Ramanujam S , Last updated: 12 May 2007  

The following are the points of importance when considering a combined interpretation of CENVAT Credit and Service Tax provisions:

1. Credit will be available of excise duty paid on inputs used for providing output services, except high speed diesel oil (HSD), Light Diesel Oil (LDO) and motor spirit (petrol).

2. In case of exempt services, the service provider can utilise Cenvat credit only upto 20% of service tax payable on output service.

3 If he does not maintain separate records and inventories of inputs/input services used in exempted final products/services, he has to pay an 'amount' (as differentiated from service tax - cess is not applicable) of 10% of price of exempted goods.

4. In case of input services, credit is available only after the amount of Bill is paid to person who had provided the service. (as differentiated from manufacturer assessee who can claim CENVAT credit as soon as goods arrive at the factory gate)

5. All input services relating to all activities relating to business are eligible for Cenvat credit.

6. Capital goods used for providing output taxable service will be available. (Similar to what a manufacturer assessee can avail i.e., 50% credit is available in first year and balance 50% in the subsequent years)

7. Goods used for provision of output services will be treated as inputs even in respect of service provider.(There is a notification in relation to this matter wherein certain restrictions have been set out)

8. 20% of service tax payable on output services for CENVAT credit if exempted and taxable services are provided.

9. Duty paid on input goods used by service providers is also eligible for Cenvat credit, but in a restricted way. [Rule 2(l)].

This is meant as a general reference. Hope the readers of the new and improved CAClub find it useful. Please send me any feedback on this or any of my other articles at ramanujam_ca@yahoo.co.in

CA Ramanujam S

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CA Ramanujam S
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