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Notification no. 1/2006 ST dated 1-3-2006 provides partial exemption (abatement) in respect of various services at different rates.
Out of these exemptions, the exemption in respect of the following three categories have been provided equal to 67%:
- Erection, commissioning and installation services
- Construction of residential complex
-Construction of commercial complex
Before availing the exemption the assessee has to ensure that no Cenvat Credit is availed on inputs, input services and / or no exemption is availed under notification no. 12/2003.
From the point of simplicity, it looks that the availing exemption equal to 67% is a better proportion than to pay service tax equal to 100% of service tax without availing Cenvat Credit.
But, an attempt has been made by way of an example given below, that availing exemption is not a better proportion in certain cases where the element of Inputs and Input Services on which Cenvat Credit is available is high.
From the example given in the table below, it is ascertained that the assessee availing exemption is paying more service tax than the person who is availing Cenvat Credit and paying service tax at full rate.
Further, an assessee may calculate the impact of service tax liability where the contract is awarded further to sub contractors. In this case if both the contractor and sub contractor chooses to avail the partial exemption, the net outflow of service tax would be more than that it should be.
Obviously, the example given below is not suitable for the contracts where the use of input and input services in much less.
Click here for Cenvat Credit Manual
Note: - In the example given below, no impact has been taken for the Cenvat Credit eligible on the Capital goods. In case assessee procures heavy capital goods to provide taxable services, the net service tax liability would reduce further.
(The calculations shown below are equally applicable to other services where the partial exemption has been provided at different rates)
Example
|
Example where the assessee calculate the tax and margin on the cost net of taxes (Exclusive Method) |
Rs. In Lacs |
|
|
With Cenvat |
Without Cenvat |
|
Valaue of Total Inputs used (57% of the project value) |
60.00 |
60.00 |
|
Value of input against which cnevat is available (Rs. 50) |
|
|
|
Value of Cenvat Credit available (on Rs. 50) |
7.00 |
|
|
Net Cost of Input (A) |
53.00 |
60.00 |
|
Value of Input Services used |
10.00 |
10.00 |
|
Value of cenvatable input services (Rs. 8) |
|
|
|
Value of Cenvat Credit (on Rs. 8) |
0.87 |
|
|
Net Cost of Input Services (B) |
9.13 |
10.00 |
|
Total Cost of the Project (C) = (A + B) |
62.13 |
70.00 |
|
Add Value addition and profit margin (D)
Value addition and profit margin is 25% over cost of material and services used in the contract (Calculated on figures without cenvat) |
17.50 |
17.50 |
|
Value of the Service provided (E) = (C + D) |
79.63 |
87.50 |
|
Service Tax rate |
12.24% |
4.04% |
|
Amount of Service Tax (F) |
9.75 |
3.54 |
|
Total Bill Value (G) = (E + F) |
89.38 |
91.04 |
|
Net payment of Service Tax through TR-6 challan |
1.88 |
3.54 |
Now, you decide, which one is better:
- availing partial exemption without Cenvat Credit
or
- paying full Service Tax with Cenvat Credit
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Alternative method of calculation:-
|
Example where the assessee calculate the tax and margin on the gross value (Inclusive Method) |
Rs. In Lacs |
|
|
With Cenvat |
Without Cenvat |
|
Valaue of Total Inputs used (57% of the project value) |
60.00 |
60.00 |
|
Value of input against which cnevat is available (Rs. 50) |
|
|
|
Net Cost of Input (A) |
60.00 |
60.00 |
|
Value of Input Services used |
10.00 |
10.00 |
|
Value of cenvatable input services (Rs. 8) |
|
|
|
Net Cost of Input Services (B) |
10.00 |
10.00 |
|
Total Cost of the Project (C) = (A + B) |
70.00 |
70.00 |
|
Add Value addition and profit margin (D) |
17.50 |
17.50 |
|
Value of the Service provided (E) = (C + D) |
87.50 |
87.5.00 |
|
Service Tax rate |
12.24% |
4.04% |
|
Amount of Service Tax (F) |
10.71 |
3.54 |
|
Less Amount of Cenvat Credit available on Inputs (G) |
7.00 |
|
|
Less Amount of Cenvat Credit available on input services |
0.87 |
|
|
Net Service Tax Payable through TR-6 Challan (H) |
2.84 |
3.54 |
|
Total Bill Value (I) = (E + F - G - H) |
90.34 |
91.04 | | 
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