Service Tax Credit before commencment of production

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This query is : Resolved

Manoj (Querist)

06 January 2010 Can a company accumulate the service tax credit on different services utilized in the period prior to its commencement of production?
Is it required to be registered in Excise for claiming the credit of Service tax?

SANJAY JAIN

SANJAY JAIN (Expert)

06 January 2010 There is expressly no bar on taking credit of eligible input services prior to commencement of production. The condition laid down is only that credit can be taken on after payment of value of input service and service tas thereupon.

Without getting Central Excise registration it is not possible.

Manoj

Manoj (Querist)

08 January 2010 Dear Mr Sanjay,
Thanks for your reply.
One more issue if we get the Excise registration at a later stage, so in that case can we claim the accumulated service tax credit whenever excise registration takes place.
In case there are different accounting years (i.e service tax credit accumulation in 2009-10 & excise registration in 2010-11). What will be the situation.

SANJAY JAIN

SANJAY JAIN (Expert)

08 January 2010 Dear Manoj,

Deserves all praise for query flown from such constructive piece of mind.

Anyway, there are basics about the service tax. The event of taxability of service tax is the time of rendering services but for the sake of convenient it is collected at the time of receipt of the value of service. Accordingly credit of input service is allowed only after making payment of value of service and service tax amount thereupon.

Now in your case, the services are received prior to registration but accumulated payment is made on after getting registration. As per the basics if the event of payment of value of service is the detrimental for taking credit, it would be allowed and nobody can object. But it appears not in consonance with the legislature intention.

To understand the above situation the Rule 3(2) of the CENVAT Credit Rules,2004 may be resorted which prescribes to allow credit on inputs lying in stock, in work in progress or in finished products on the date of ceasing the exemption from duty. Means any manufacture on the date of ceasing exemption, is entitled for taking credit in respect of inputs. This rule does not provide for capital goods neither for input service. Hence it may be inferred that payment made for services received prior to the date of registration does not qualify for taking credit.

Further query regarding change of financial year is not much relevant here and donâ€™t confused.

Further if any query keep in touch.

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