Holidays

This query is : Resolved

DHAVAL (Querist)
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21 August 2012 one of my party is doing business of holidays

They book hotel through agents and they work as sub agent. they get invoice from agents suppose Rs. 1,00,000 + 1.236% service tax.

And they raise invoice to customer Rs.1,20,000 + 1.236%

Now, can he claim cenvat credit of S.tax he paid to agent on Rs.1,00,000/- ?

Is there any abetment in the clause of liability of S.tax on 10% amount. ?

Is there any better option to reduce service tax ?

Amol S Joglekar

Amol S Joglekar (Expert)
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21 August 2012 The full set off can be claimed in all such back to back billing cases.

DHAVAL

DHAVAL (Querist)
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23 August 2012 please refer my questions....

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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28 July 2024 When dealing with service tax in the context of a business involved in booking holidays, understanding how to manage and optimize tax liability is essential. Here’s a detailed breakdown of the queries you have:

### **1. Cenvat Credit on Service Tax Paid to Agent**

**Eligibility to Claim Cenvat Credit:**

- **Service Tax Paid to Agent:** If your party, acting as a travel agent, pays service tax to another agent (sub-agent), they can generally claim Cenvat credit on the service tax paid, provided that the service is used in the course of providing taxable services.

- **Input Service Definition:** The service tax paid to the agent is considered an input service if it relates to the business of providing holiday packages. The credit can be claimed under the Cenvat Credit Rules if it is used for providing taxable services. However, since the service tax is paid on services that are indirectly related to the primary service, it’s essential to ensure that the conditions for claiming credit are met.

### **2. Abatement of Service Tax**

**Abatement Provision:**

- **Abatement Under Service Tax Law:** In the past, certain services were eligible for abatement under the service tax law, which reduced the taxable amount for calculating service tax. This is usually applied to services where only a part of the total value is subject to service tax.

- **Travel Agents Service:** For travel agents, there has been a provision for abatement, where the service tax is calculated on a part of the total amount charged. Historically, the abatement was around 90% for travel agents, meaning that only 10% of the value was subject to service tax.

- **Current Regime:** Under the current GST regime, similar provisions may apply, but you need to check the specific GST rules applicable to your services. The abatement rules might have changed with the introduction of GST.

### **3. Optimizing Service Tax Liability**

**Options to Reduce Service Tax Liability:**

1. **Utilize Abatement:**
- Ensure you apply any available abatements correctly if applicable under the service tax regime. For travel-related services, historical abatements could be substantial.

2. **Claiming Input Tax Credit:**
- Claim Cenvat Credit on all eligible input services, including service tax paid to agents, to reduce the overall tax liability. Maintain proper documentation to support your claims.

3. **GST Transition:**
- With the introduction of GST, the service tax regime has been replaced by GST. Ensure compliance with the new GST rules, including claiming input tax credits for GST on inputs and services.

4. **Review Invoicing and Taxation:**
- Carefully review invoicing practices to ensure you are correctly applying tax rules. Ensure that service tax is not incorrectly applied or omitted.

5. **Consult a Tax Advisor:**
- Given the complexity of tax laws and frequent updates, consulting with a tax advisor or a CA specializing in indirect taxes can provide you with customized advice to optimize your tax liability.

### **Summary**

- **Cenvat Credit:** Yes, you can claim Cenvat credit on the service tax paid to the agent if it’s used for providing taxable services.
- **Abatement:** Check if abatement applies under the service tax law (historically 90% for travel services). For GST, similar provisions may apply.
- **Optimize Liability:** Utilize input tax credits, apply available abatements, and consult a tax advisor to ensure compliance and optimization.

In the current GST regime, many of these considerations would now relate to GST rules, and it’s important to stay updated on the applicable provisions.

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