Service tax input credit on capitalised services

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During the Financial Year 2007-08 we have capitalized some services. For these services we have made payment during the current financial year 2008-09. As we have not paid the amount for the services last year, we have not taken the credit on service tax portion on capitalized amount. Now the query is in the current financial year we should take credit at 100% or 50%.
Replies (4)

It is irrelevant whether you have charged such service expenses in capital account or in revenue account.

If it falls in the definition of input services, take 100% credit.

 AS per the Cenvat credit rules & also Accounting Standards, we can either take CENVAT credit of the taxes paid or capitalise or expense out in the P & L Account.

 

if you have already captalised it, you cannot avail credit on the same.

to claim credit you wll be required to rectify the previous year accounts, which is not feasible

Rovin is right, If cenvat credit has been taken- i is not an expense. You cant deduct is.

I think the query is that for a bill of Rs 100+ST 12.36 in 2007-08, Rs 100 had been capitalized in 2007-08. Now, issue is whether to capitalize Rs 12.36, or take 50% Cenvat on that, or take 1000% Cenvat on that.

AS-10 allows us to avoid capitalizing taxes subsequently recoverable from the tax authorities(service tax credit definately is under that).

Both Section 32 of IT Act 1961 & Cenvat Credit Rules 2004 prohibit dual claim of depreciation & Cenvat Credit.

However(and this is the crux), there is no accounting or taxation bar on capitalizing Rs 100 and taking Cenvat credit of Rs 12.36

By the way, 50% Cenvat credit is only for EXCISE dutry on capital goods and never for service tax(even if it results into a capital asset-pl note the distinction b/w capital goods & capital assets).

CONCLUSION: Without any hassles, you can take 100% Cenvat credit in 2008-09 w/o changing ur accounting/tax records. Pass the entry as

Cenvat Credit Receivable A/c Dr...12.36

to Bank A/c.........................................12.36

 

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