Cenvat credit on service tax - car hire charges

Hello,

According to the Notification No.30/2012 dated 20th June 2012, service of renting of motor vehicle to carry passengers, provided by individuals, HUFs, Partnership Firms (registered or not) and Association of Persons to a business entity, registered as body corporate is coming under Reverse Charge Mechanism.

The liability of payment of 100% service tax lies on the service receiver if abatement is claimed. Therefore any business entity, registered as body corporate is liable to pay 100% of service tax if they claim abatement.

If abatement is not claimed, then the service is coming under partial reverse charge mechanism. Thereby both service provider and service receiver is liable to pay service tax of 50% each.

It is necessary that both the service provider and service receiver is located in the taxable territory.

abatement on Renting of Motorcab

When the service receiver is paying 100% of service tax on the service of renting of motor vehicle to carry passengers, he can claim abatement. Abatement available for the service is 60%. Therefore the service provider is liable to pay service tax only 40% of the value of service.

However, in order to claim abatement, there are some conditions to be satisfied. CENVAT Credit on inputs, capital goods and input services used for providing taxable services, should not be taken.