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Service Tax Credit

Vijay (CA) (254 Points)

20 July 2009

Dear ALL

If HO done expenses and pays service tax (ST), then this input credit of ST can be distributed to all manufaturing units in some proportionate bais or can be distributed to any one or two units, as per the requirements of that units.

Thanks in advance for your reply.

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6 Replies

Ritesh Goyal (Dy Manager) (111 Points)
Replied 20 July 2009

It is better to distribute HO expenses on t he basis of production capacity as well as if some expenses are in relation to specific plant/ unit then only u can distribute credit to that particular plant under ISD route.

Dilip Darji (392 Points)
Replied 20 July 2009

Hi Vijay.

Head Offuice can distrubte Service tax credit among its manufacturing units or providing out put service.Head Office needs to prepare Invoice for this purchase, which has a specific column to metion the name address of the receipient of Service. Therefore it is not possible to transfer all credit to one place. Although Rule 7 of CENVAT credit Rule does not specify such condition. But the crux of the law is that service tax credit to be distrubuted to only those units where the service are used for manufacturing excisable goods or providing taxable Service. The Provision of Rule14, for imposimg penalty are very harsh, if the credit has been wrongly distributed.

DILIP DARJI

Viren D. Thakker (CMA Final) (174 Points)
Replied 28 July 2009

Dear All,

How do we take service tax credit in case of whole of manufacturing is subcontracted and subcontracter is manufacturer

Dilip Darji (392 Points)
Replied 28 July 2009

Mr.Viren.

(1) Is your query connected to the basic question raised over here and the reply given to the queriest?

(2) If sub-contractor (B) is an indepenmdent manufacturer (manufacturing independently identifiable product) , the manufacturer (A)who has received inputs and availed CENVAT Credit, can very well pass on the said credit in favour of sub-contractor(B), who shall avail CENVAT Credit and shall pay central excise duty on removal of FG to main manufacturer (A). The manufacturer (A) shall be elligible to avail CENVAT credit of duty paid by sub-contractor (B).

(3) If sub-contractor (B) is not an indepenmdent manufacturer and simply a job-worker, the manufacturer (A)who has received inputs and availed CENVAT Credit, can very well send inputs to sub-contractor(B), under Rule 4(5)(a) of CENVAT Credit Rules, 2004 and can bring back the processsed goods. After the receipt of processed goods a manufacturer (A) can undertake further manufacturing process and can remove finished goods, on payment of central excise duty. There is no question of passing on CENVAT Credit.

REgards.

DILIP DARJI.

Viren D. Thakker (CMA Final) (174 Points)
Replied 28 July 2009

Dear Dilip,

Thanks for your reply but i want to ask one thing that

The main company who gives contract to the subcontracter for producing the goods. The Raw Material and Packing Material are supplied to the subcontracter by the main company. The subcontracter converts the raw material to finished goods and after producing the goods, the subcontractor clears the goods from his factory to the warehouse of the main company For this activity the subcontracter pays the excise duty and get it reimbursed from the main company. But my question is that when the main company advertises for the product then can the main company get the service tax credit? Because advertisement expense is the input cost of the product. If the service tax credit is available then it can be set off against excise tax. Can you tell me regarding this

Dilip Darji (392 Points)
Replied 28 July 2009

Dear Mr.Viren.

As per Rule 3(1) of CENVAT Credit Rules, 2004, a manufacturer or producer of final products or a provider of taxable services shall be allowed to take credit (hereinafter referred to as the CENVAT Credit) 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 10/09/2004 (ii) any input service received by the manufacturer of final product or by the provider of output service on or after 10/09/2004.

Since the cost of advertising expenses has been included in the cost of final product, in view of above statutory provision, the main manufacturer can very well avail CENVAT credit of advertising expenses,

As per Rule (4) of CENVAT Credit Rules, 2004, "The CENVAT Credit may be utilised for payment of any duty of excise on any final product.

Accordingly, you may use such CENVAT credit of Service Tax on advertising Services, towards payment of Central Excise duty on clearance of final product from the premises of main manufacturer.

Enjoy the credit.

DILIP DARJI.