Cenvat credit of CVD on imported goods — Utilisation towards payment of Service tax - Service Tax - F. No. 137/120/2008

letter F. No. 137/120/2008-CX.4 dated 24-6-2008 ) [Commissioner of Central Excise, Madurai , Trade Notice No. 42/2000 (Service Tax No. 15/2008), dated 11-9-2008 ] Cenvat credit of CVD on imported goods Utilisation towards payment of Service tax M/s. Hindustan Construction Company Limited (HCCL) imported an aircraft last year, which was cleared on payment of appropriate Customs duty (i.e., CVD). After its import, the aircraft was being let out by HCCL on hire basis without transferring right of possession and effective control. From 16-5-2008, 'supply of tangible goods for use, without transferring right of possession and effective control' was brought under taxable service. After 16-5-2008, such activity attracts service tax on the hire charges received by HCCL. In this regard, it has been requested that HCCL should be allowed to take credit of the CVD paid on the aircraft and utilize it for paying service tax. The modality suggested is to amend the Cenvat Credit Rules, 2004 so as to specifically include aircraft within the definition of capital goods, as has been done in case of motor vehicles for providing specified services. 2. The matter has been examined. It is noticed that in this specific case, the aircraft was imported last year and till 15-5-2008, the service provided by HCCL was outside the scope of the Section 66 of the Finance Act and thus was covered under the definition of the term "exempted services" under the Cenvat Credit Rules, 2004. As per Rule 6(4), no Cenvat Credit can be taken on capital goods, which are used in providing only exempted services. Therefore, ab initio, HCCL was not eligible to take credit of CVD. Such being the case, the credit which was ab initio ineligible, does not become eligible, after the service tax is imposed on the service at a later date. It is therefore clarified that no Cenvat credit of the CVD paid on the said aircraft should be taken, even if it is specifically included within the definition of 'capital goods'. 3. This may be brought to the notice of all constituent members of your trade associations.