Input credit

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CA Jithesh C (Querist)
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28 October 2009 A company has been registered as service provider. They have not yet provided any service. For this month they are payinng services on behalf of foreign service providers just like service receiver paying service tax. They have input credit on some other expenses incurred. Can they deduct the input credit from the service tax payable amount?

CA SANJAY MUKHERJEE

CA SANJAY MUKHERJEE (Expert)
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28 October 2009 No Credit for Deemed Service Providers
The recipient of services is also considered as the person responsible for payment of service tax under Rule 2(d) where the insurance auxiliary services, services received by resident from non resident outside IndIa, GTA ( other than individual and un registered partnership firm) and mutual fund distributor. This provision came into effect from 16.2.2002 and prior to that there was no machinery to recover the same. Even after the said date until 01.01.2005 there is a technical flaw in the law for enforcement of the said rules.
Since the service receiver is deemed to be the service provider the question is whether the input credits/ input services credits would be available to him. In the Cenvat scheme the availing of the credit and the utilisation thereof is separate. The payment of taxes/ duties are also different. Therefore such a person would not be eligible for the credit, unless he is also providing taxable service or manufacturing excisable goods. ( Dept. Circular no. 345/4/2005 â€“ Tru dt. 3.10.2005 also takes this logic.)

Ref :
https://www.caclubindia.com/articles/article_list_detail.asp?article_id=2335

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