Service tax credit taken on proportionate basis

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Vijay Chitte (Querist)

26 September 2007 Query regarding; Can service tax credit is available on proportionate basis, If unit manufacturing excisable as well as exampted products? i explaine query by way of illustration.

We are manufacturing of dutiable and exempted products, we are availing a service of labour contractor, which is used in the manufacture of final products. Labour contractor monthly basis charged the bill with service tax for Rs.112360/- (100000 + 12360 service tax).

Now question of taking a service tax credit for the above Invoice.

For taking service tax credit, we have apply the proportionate credit method like …

We have collect the production data from our production department, like dutiable production qty 1,00,000 nos and Excisable production qty 50,000 nos, so the total nos of production is 1,50,000 nos (1,00,000+50, 000).

We are applied proportionate formula like

50,000 (Excisable production) * 12360 (Service tax credit)
-------------------------------------------
1,50,000 (Total production)

=4120 eligible service tax credit

1) IS IT CORRECT WAY TO TAKE THE SERVICE TAX CREDIT?

2) Can you provide me any Judgment to established that service tax credit cannot be taken on proportionate basis?

Note: As per my view in CC rule there is no restriction to take proportionate service tax credit, If you have, please provide me.

Please give expert views.

Regards
Vijay Chitte
Executive Taxation

Ravikumar.G

Ravikumar.G (Expert)

29 September 2007 Earlier it was after payment of service tax to government by the respective parties (i.e claimable portion) then they can avail the credit facility. Now a days that treatment has been relaxed by the department.