Credit of service tax paid under reverse charge

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CA CS Manmath Thakur

CA CS M. Com.

71 Points Posted on 05 January 2017

Dear Sir / Madam

Our company is mainly engaged in the business of trading of various industrial products. It is registered as a "First Stage Dealer" under Central Excise Act. In addition to this, its sells goods on commission basis and pays service tax on its output service.

It pays freight charges for transport of Goods. In relation to this its pays Service Tax as per reverse charge mechanism. However company has not maintained separate books of accounts specifying that how much Freight charges are for Trading Activity and how much for Consignments / Service Activity.

My Question is

Whether company can take input tax credit of service tax paid under reverse charge mechanism (Freight Charges) for its output Service ?

Whether total credit will be available irrespective of Freight charges for "Trading Activity" or "Service Activity" ?

Whether company is required to maintain separate books of accounts for availing of credit ?

Replies (4)

PAWAN KUMAR

967 Points Posted on 05 January 2017

1.Yes.

2.NO. Only attributable to taxable output service activity.

3.Optional. You may maintain separate inventory and claim only which is relatale to taxable. If you opt for common, you need to pay 7% or Proportinate reversal process under rule 6 of cenvat credit rules, 2004.

CA CS Manmath Thakur

CA CS M. Com.

71 Points Posted on 05 January 2017

Thank you sir ........

Madhukar N Hiregange

Chartered Accountant

39039 Points Posted on 05 January 2017

The answers given are incomplete. Please go thru Rule 6 of the Cenvat Credit Rules. It provides options:

1. Seperate accounting of input service credit used ONLY for taxable activity ( if one has cost centre based a/c) or breaking up the common credits by following cost accounting norms. Avail credit only of that portion used for provding taxable service.

2. Otherwsie pay 7% of the value of exempted service ( what is an exempted service - see rule 2(e) of the CCR.

3. Pay amount as calcualted as per 6(3A) which again has 2 option within.

We should remember that now a days the reversal under rule 6 is an issue which is a usual audit objection and leads to SCN in many cases which take years ot resolve.