Taking credit of vat & ex.duty for services rendered

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navman

owner

41 Points Posted on 22 February 2012

Hi,

We are a small firm providing electronics related engineering & manufacturing services. As such we are registered under Central Excise, VAT and Service tax. This particular question pertains to service tax and providing services.

We are providing engineering related R&D services to our clients and raising service tax invoice on the services provided. But while providing these services we need to buy certain "input" raw materials/components and use them by either building a prototype (proof of concept) and/or testing them (R&D) to render the service. Buying such "input" components incurs excise duty, import duty and/or VAT. Since these material are brought for the sole purpose of providing services, we would like to know whether the duties & VAT incident on these "input" material can be taken as credit in service tax account? If so please clarify what rule/notification allows this.

Replies (5)

jogendra

DGM-Commercial

115 Points Posted on 22 February 2012

1- If you take cenvat credit of the excise duty at the time purchasing of raw material component you can deduct the said amount at the time of discharging service tax liaiblity on the total value of providing services (including material component).

2- If you dont take cenvat credit of the excise duty at the time purchasing of raw material component you can prepare bill in two parts. part one is for supply of material on which VAT/CST is payable (service tax is exempted on the value of supply of material during the course of providing taxable services under Notificaion No.12/2003-ST). Second part for providing of services on which service tax is payable.

Hope the thing is clear to you now.

Chirayu Kothi

Consultant Excise and Service Tax

388 Points Posted on 22 February 2012

Yes you can sure take cenvat credit of your Raw Material and Input Services under Rule 3 of CCR 2004.

navman

owner

41 Points Posted on 23 February 2012

Thanks for your replies. Please do note that we had talked to the local central excise authroities and they say that input credit for the raw materials can be taken only if it is used in the subsequent manufacturing of goods sold under excise invoice only. They say that input credit cannot be taken if the material is used for providing services. This seems strange to me. So can somebody please substantiate quoting relevant rules/notification so we can convince the authorities?

navman

owner

41 Points Posted on 23 February 2012

Mallikharjun

Deputy Manager

354 Points Posted on 23 February 2012

Hi Navman, From 10.09.2004 onwards, cross credit utilisation is possible. That is, Excise duty credit can be utilised for payment of service tax and service tax credit can be utilised for payment of excise duty. Cenvat credit rules also modified suitably. Pls go through the rule 3 of CCR and show the same to your excise authority and start taking credit. You need not convince them also. Just show the relevant rule and inform them that you are availing credit.