Service Tax

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Lone warrior..!! (Querist)
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15 December 2009 Hi Guys,

if in a company which is into both businesses i.e Trading(selling of Equipments) & Services(AMC's) must the input ST credit on general exps like telephone, electricity,air travel, Corier Charges etc must be bifurcated according to proportion of turnover relating to income from SERVICES
or can the whole amt of ST can be taken as credit??

Madhukar N Hiregange

Madhukar N Hiregange (Expert)
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15 December 2009 Under rules 6 (3) there is no specific bar on credits used for trading activity. However it maybe wise to estimate based oncosting porinciples, the duty credit allocable for trading and avail short credit to that extent. It is a fact that majority of input service wouldbe used for provding services and proportion of services for trading wouldbe less.

Lone warrior..!!

Lone warrior..!! (Querist)
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16 December 2009 so every input service tax credit can be taken right??

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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24 July 2025 Your query is regarding Input Service Tax Credit in a company engaged in both trading (selling equipment) and providing services (AMCs) under the Service Tax regime (pre-GST).

✅ Short Answer:
No, you cannot claim the full input service tax credit if part of it relates to trading activities, because trading is not a “service” under the Service Tax law and was considered an exempt activity.

📌 Explanation in Detail:
🔹 1. Trading is an Exempt Activity
As per CBEC Circular No. 943/4/2011-CX, dated 29.04.2011:

Trading activity is not a "service" and is exempt for CENVAT purposes.

Hence, input services used for trading are not eligible for input credit.

🔹 2. Rule 6 of CENVAT Credit Rules, 2004
Rule 6 deals with input services used for both taxable and exempted services.

You must either:

(a) Maintain separate accounts for inputs/input services used for taxable vs. exempted services; or

(b) Use the proportionate credit reversal method (Rule 6(3A)).

🔹 3. Common Input Services (Telephone, Courier, Travel, etc.)
These are common input services, used for both trading and AMC.

Therefore, credit on such expenses must be proportionately reversed for the trading part.

🔹 4. Can Full Credit Be Taken?
No, unless:

You maintain separate accounts showing usage only for the taxable services, or

The input service is exclusively used for providing AMC services.

🧮 Example:
Suppose your total turnover is:

₹1 Cr from Trading

₹1 Cr from AMC Services

You used ₹2 Lakh input service tax on common expenses.

Then, only 50% (₹1 Lakh) is eligible for CENVAT credit (based on turnover proportion), unless you segregate it better.

✅ Conclusion:
✔ Input Service Tax Credit must be proportionately reversed for the portion used in trading (exempt activity).

❌ You cannot claim 100% credit on common input services unless you prove exclusive usage for taxable service.

🧾 Use Rule 6(3A) method to compute the reversal and stay compliant.

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