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Availing credit of Service Tax paid @ 4.12%(composition scheme)

Rajesh Singh (Article Trainee) (85 Points)

14 July 2011

Hi all,

A manufacturing company pays Excise Duty on manufacturing.

It has availed services from a contractor for work contract who charges the company @ 4.12% as Service Tax under composition scheme.

Can this company avail the credit of Service Tax paid @ 4.12% against the excise duty that it pays?

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11 Replies

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 14 July 2011

yes input credit is allowed

Rajesh Singh (Article Trainee) (85 Points)
Replied 15 July 2011

Originally posted by : U S Sharma
	yes input credit is allowed

Thanks a lot for reply however can you pls provide the notification no. or any other reference which can prove the above since we need to produce it to the client to convince him.

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 15 July 2011

Rule 3. CENVAT credit. ---(1) A manufacturer or producer of final products or a provider of taxable service shall be allowed to take credit (hereinafter referred to as the CENVAT credit) of –

(i)	the duty of excise specified in the First Schedule to the Excise Tariff Act, leviable under the Excise Act;
(ii)	the duty of excise specified in the Second Schedule to the Excise Tariff Act, leviable under the Excise Act;
(iii)	the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Textile and Textile Articles) Act,1978 ( 40 of 1978);
(iv)	the additional duty of excise leviable under section 3 of the Additional Duties of Excise (Goods of Special Importance) Act, 1957 ( 58 of 1957);
(v)	the National Calamity Contingent duty leviable under section 136 of the Finance Act, 2001 (14 of 2001);
(vi)	the Education Cess on excisable goods leviable under section 91 read with section 93 of the Finance (No.2) Act, 2004 (23 of 2004);
(via)	the Secondary and Higher Education Cess on excisable goods leviable under section 136 read with section 138 of the Finance Act, 2007 (22 of 2007);
(vii)	the additional duty leviable under section 3 of the Customs Tariff Act, equivalent to the duty of excise specified under clauses (i), (ii), (iii), (iv), (v) (vi) and (via);
(viia)	the additional duty leviable under sub-section (5) of section 3 of the Customs Tariff Act,
Provided that a provider of taxable service shall not be eligible to take credit of such additional duty;
(viii)	the additional duty of excise leviable under section 157 of the Finance Act, 2003 (32 of 2003);
(ix)	the service tax leviable under section 66 of the Finance Act;
(x)	the Education Cess on taxable services leviable under section 91 read with section 95 of the Finance (No.2) Act, 2004 (23 of 2004); and
(xa)	the Secondary and Higher Education Cess on taxable services leviable under section 136 read with section 140 of the Finance Act, 2007 (22 of 2007); and
(xi)	the additional duty of excise leviable under section 85 of Finance Act, 2005 (18 of 2005 )
Provided that the CENVAT credit shall be allowed to be taken of the amount equal to central excise duty paid on the capital goods at the time of debonding of the unit in terms of the para 8 of notification No. 22/2003-Central Excise, published in the Gazette of India, part II, Section 3,sub-section(i),vide number G.S.R. 265(E), dated, the 31st March,2003. paid on-
(i)	any input or capital goods received in the factory of manufacture of final product or premises of the provider of output service on or after the 10th day of September, 2004; and
(ii)	any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004,

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 15 July 2011

the only prohibition is there, that if the assesee is availing any value based exemption then he is barred from all input credits, if paying duty at full rate then ....all credits allowed.

CA Unnikrishnan Nair N (Chartered Accountant) (2083 Points)
Replied 16 July 2011

From 01-04-2011 onwards credit of service tax in relation to setting up is not available

1 Like

pradeep gupta (Artical Assistant) (25 Points)
Replied 18 July 2011

Dear sir,

even I have doubt for the CENVAT credit of ST paid @ 4.12%. The Rate of ST @ 4.12% came as 33% abatement on original rate of 12.36%. in absense of any notification, the rate is still 4.12% even though ST rate changed to 10.3%. however as far as i know, we can't take Cenvat Credit if the service provider have availed option of abatement (i.e 75% abatement on construction service, 75% of GTA services etc.)

so i am under impression that Service receipient can not take credit of ST paid on @ 4.12% however the service provider can take credit of Input services & cenvat on Cap Goods (notification no 96/2007)

Pls correct me.

Thanks..

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 18 July 2011

Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007

Rule 1. Short title and commencement –

(1)	These rules may be called the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.
(2)	They shall come into force with effect from the 1^st day of June, 2007.

Rule 2. Definitions –

(1)	In these rules, unless the context otherwise requires,-
	(a)	“Act” means the Finance Act, 1994 (32 of 1994);
	(b)	“section” means the section of the Act;
	(c)	“works contract service” means services provided in relation to the execution of a works contract referred to in sub-clause (zzzza) of clause (105) of section 65 of the Act;
	(d)	words and expressions used in these rules and not defined but defined in the Act shall have the meanings respectively assigned to them in the Act.

Rule 3.

(1)

Notwithstanding anything contained in section 67 of the Act and rule 2A of the Service (Determination of Value) Rules, 2006, the person liable to pay service tax in relation to works contract service shall have the option to discharge his service tax liability on the works contract service provided or to be provided, instead of paying service tax at the rate specified in section 66 of the Act, by paying an amount equivalent to [Four]¹per cent. of the gross amount charged for the works contract.

Explanation.- For the purposes of this rule, gross amount charged for the works contract shall not include Value Added Tax (VAT) or sales tax, as the case may be, paid on transfer of property in goods involved in the execution of the said works contract.

(2)

The provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of CENVAT Credit Rules, 2004.

(3)

The provider of taxable service who opts to pay service tax under these rules shall exercise such option in respect of a works contract prior to payment of service tax in respect of the said works contract and the option so exercised shall be applicable for the entire works contract and shall not be withdrawn until the completion of the said works contract.

Superscriptts indicating amendments

¹. Substituted vide Notification No. 7/2008 - ST, dated 01-03-2008

(The principal rules were notified vide notification No. 32/2007-Service Tax, dated the 22nd May, 2007)

here the word "provider" is used, not the receipent.

Ganesh (CA) (111 Points)
Replied 19 July 2011

Pls check

01/2011 - Service Tax, dated 01-03-2011 for latest provision

U S Sharma (glidor@gmail.com) (21056 Points)
Replied 19 July 2011

[TO BE PUBLISED IN THE GAZETTE OF INDIA, EXTRAORDINARY, PART II, SECTION 3,

SUB SECTION (i)]

Government of India

Ministry of Finance

Department of Revenue

********

Notification No.1/2011 – Service Tax

New Delhi, the 1

March, 2011

G.S.R. (E).- In exercise of the powers conferred by sections 93 and 94 of the Finance Act,

1994 (32 of 1994), the Central Government, on being satisfied that it is necessary in the public interest

so to do, hereby makes the following rules further to amend the Works Contract (Composition

Scheme for Payment of Service Tax) Rules, 2007, namely :-

1. (1) These rules may be called the Works Contract (Composition Scheme for Payment of

Service Tax) Amendment Rules, 2011.

(2) They shall come into force on the date of publication in the official gazette.

2. In the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007, in

rule 3, after sub-rule (2), the following sub-rule (2A) shall be inserted, namely:-

“(2A) The CENVAT credit of tax paid on taxable services as referred to under sub-clauses

(zzd), (zzq) and (zzzh) of clause (105) of section 65 of the Finance Act, 1994, shall be available

only to the extent of 40% of the service tax paid when such tax has been paid on the full value

of the service after availing CENVAT credit on inputs.”.

Note.- The principal rules were notified vide notification no. 32/2007-Service Tax, dated the 22

May, 2007, published in the Gazette of India, Extraordinary vide number G.S.R. 378(E), dated the

May, 2007 and last amended vide notification No.23/2009-Service Tax, dated the 7

July, 2009,

vide number G.S.R. 495 (E), dated the 7

July, 2009.

==================================================================

this rule also limits the "provider to pay 100% tax without composition and avail 40% input credit", but nowhere mentioned that the service receipent is barred with input credit.

pradeep gupta (Artical Assistant) (25 Points)
Replied 21 July 2011

Thank you so much for your replies.

however the case is as follow

our client is a mnfg co (paying excise duty) and it has given material + labour (inseparable) contract to some contractors. all the contractors bill include VAT @ 5% and Service Tax @ 10.30% *33%=3.39% and our client co is availing Credit of the said service tax. i hav notion that contractors should bill ST @ 4.12%. so just want to know whether the treatment by company & billing by contractors is right and if not then what should be the treatment.

my confusion is if we can take credit in both cases i.e. ST @ 3.39% and St @ 4.12% then every one will go for ST @ 3.39%. pls guide me. the intention is to provide best possible suggestion to client.

Thanks & Regards

Madhukar N Hiregange (Chartered Accountant) (38934 Points)
Replied 21 July 2011

The credit on WC service would be available for moderisation, expansion, repair etc but not for initial setting up as per the FA 2011 wherein many restrictions on credit have been put in place..