Cenvat credit eligibility, Central Excise

[JSW CEMENT LIMITED]

We have engaged M/s.Janashakti Transport for supplying us Bulker vehicles on rent basis for shifting of coal within the plant premises and the service provider is raising invoice on us charging service tax under the category “Supply of tangible goods for use Service” with description of service as “Hiring of bulker for Coal shifting for the period from 01.08.2015 to 31.08.2015.

As per the provisions of Rule 2(l)(B) of the Cenvat Credit Rules, 2004, services provided by way of renting of motor vehicle in so far as they relates to motor vehicle which are not capital goods has been excluded from the definition of input service.

Rule 2(A)[viii] of Cenvat Credit rules states that [(viii) motor vehicles other than those falling under tariff headings 8702, 8703, 8704, 8711 and their chassis [but including dumpers and tippers]] to be capital goods. Meaning motor vehicles falling under chapter ID 8702, 8703, 8704 8711 and their chesis except dumpers and tippers are to be excluded from the definition of capital goods.

Bulkers are specialized vehicles used for transportation of fine powdered articles like cement, GGBS, Flyash, Grains or liquid in Bulk quantity and are classified under chapter Heading 8704.

In light of the above, kindly clarify whether service tax charged by the service provider in respect of shifting of coal in bulkers within the plant premises are eligible for Cenvat Credit.

It is worthy to note here that coal is an important raw material which is used for firing of the Kiln said to be heart of Cement Plant where calcinations of crushed lime stone along with other admixtures takes place at a very high temperature to manufacture clinker, an intermediate product, required for manufacture of Cement.

Posts / Replies

[MUKUND THAKKAR]

sir,

I think such service is not eligable for cenvat credit, as per following under standing.

Following services are excluded from definition of ‘input service’ only so far as they relate to a motor vehicle –

* General Insurance Services [Section 65(105)(d)]

* Renting of a cab [Section 65(105)(o)]

* Motor vehicle related service (earlier termed as Authorised Service Station service) [Section 65(105)(zo)]

* Supply of tangible goods [Section 65(105)(zzzzj)]

However, these services will be eligible as ‘input services’ if used for provision of taxable services for which Cenvat credit of motor vehicle is available as capital goods.

Thus, specified input services relating to ‘motor vehicle’ are specifically excluded except in cases where motor vehicle is eligible for Cenvat Credit as capital goods (See definition of ‘Capital Goods’ for Cenvat Credit).

[PAWAN KUMAR]

Dear Sir,

As per my view,

1.Services used in or in relation to manufacture of final products whether directly or indirectly shall covers the services of bulker.

2.Services related to transportation of inputs.

3.No exclusion of bulkers. It is not your capital goods. It is the handing equipment which you have taken on hire from the service provider.

Therefore, eligible for availing cenvat credit.

[Rajagopalan Ranganathan]

Sir,

I agree with the views expressed by Shri. Pawan Kumar. It is material handling equipment and used within the factory of manufacture of final products. Hence service tax charged on the goods are eligible as cenvat credit under Cenvat Credit Rules, 2004.

[GOKARNESAN.S SUBRAMANIAN]

Sir

First you have to examine the contract entered between you and the transporter. If the contract says that the vehicle is hired only for the purpose of moving materials within the plant from one department to another, then you may ask your contractor to give his bill as " Charges for movement of inputs (i.e. coal, gypsum, clinker, lime stone etc) within the factory by using our vehicle".

In such cases, the main scope of service would be " handling / movement of materials" (i.e. cargo handling services) and for doing such service, the service provider uses his own vehicle". Further, the exclusion clause (i.e. renting of motor vehicle, which is not a capital goods) given in Rule 2 (l) (B) is not applicable in this case as the service provider is eligible for cenvat credit on such vehicle in terms of Rule 2A(a)(B), definition of capital goods, in as much as the said motor vehicle is a capital goods and used for providing the output service (i.e. cargo handling service).

Even if the scope is mentioned as 'Renting of motor vehicle' in the invoice, still credit is eligible on the following grounds:

a) As per the contract / invoice, the vehicle is used for movement of goods which is used in or in relation to manufacture of final products and hence, covered in the main part of the definition.

b) The words given in the exclusion clause of input service definition ' Service provided by way of renting of motor vehicle, in sofar as they relate to a motor vehicle which is not a capital goods' - refers to ' the said motor vehicle is an eligible capital goods for the input service provider and not to the manufacturer who hire the motor vehicles'.

c) Further, the eligibility of credit on motor vehicle as capital goods for the manufacturer is to be seen only if the manufacturer directly procures / buy the said motor vehicle under cover of an excise invoice evidencing payment of excise duty. In the present case, you are not buying / procure the motor vehicle in your name for self use, instead you are only hiring the vehicle for use in or in relation to manufacture of finished goods. Hence, the capital goods eligibility should be seen only on the service provider point of view.

d) For the service provider, it is an eligible capital goods.

Hence, in both the situation, you are eligible for input service tax credit subject to proper wordings in the scope of service not only in the contract but also in the input service invoice.

Advised accordingly

Regards

S. Gokarnesan

Advocate

Chennai

098400 87349

[email protected]

[MUKUND THAKKAR]

Sir,

View express by Mr.S. Gokarnesan and suggested way with the some changes of wording in invoice, but according to me scope of service cargo handling service is part of port services, in above situation service is not providing in port, but in domestic area. dept. is never thinking out of box, they simply follow the rules and raised the demand. nature of service is only movment of material in side of factory by way of using the vehicle of contractor. so handling activity service is not applicable, inside transportation service is question of eligibilty of service tax credit.

[JSW CEMENT LIMITED]

The views and opinion expressed by Mr. Gokernesan seems to be worth considering as if one go by the line in the exclusion clause i.e."Service provided by way of renting of motor vehicle, in sofar as they relate to a motor vehicle which is not a capital goods". it would be revealed that it talks about services provided by way of renting meaning it should be a capital goods for the service provider and not manufacturer, thus any vehicle which is not a capital goods for a service provider is excluded from the definition but if the vehicle is a capital goods to a service provider in terms of Rule 2A(a)(B) of CCR 2004, even renting of motor vehicle for the purpose of movement of goods within the plant premises can be considered input service in terms of definition of input service provided it is used directly or indirectly in or in relation to manufacturing operation.

[GOKARNESAN.S SUBRAMANIAN]

Mr. Mukund Takkar

i disagree with your views . Both cargo handling service and port service are independent . Cargo handling is not part of port services.

As per new definition of service, any activity by one person to another for a consideration is a taxable service except activity covered in negative list.

even if any material handling service rendered outside port, it is a service.

regards

gokarnesan