Cenvat Credit, Service Tax

[Sanjeev Sharma]

A Service Provider providing Chargeable and Exempted service both was paying service tax after taking CENVAT credit of input which are used only in taxable services in accordance with old rule 6(2).

Now with the changes in Budget 2016, what are the compliance to be done by that service provider who is taking credit of only those input which are directly used in taxable services. He is not taking any credit for common services. Is the Service Provider has to submit any declaration required under Rule 6(3A)

Posts / Replies

[Binu Karuthedath]

Dear Sanjeev Sharma JI

Please refer the below explanations

⁴²[(2) A manufacturer who exclusively manufactures exempted goods for their clearance upto the place of removal or a service provider who exclusively provides exempted services shall pay the whole amount of credit of input and input services and shall, in effect, not be eligible for credit of any inputs and input services.]

⁴³[(3) (a) A manufacturer who manufactures two classes of goods, namely :-

(i) non-exempted goods removed;

(ii) exempted goods removed;or

(b) a provider of output service who provides two classes of services, namely:-

(i) non-exempted services;

(ii) exempted services,

shall follow any one of the following options applicable to him, namely :-

⁴⁹[(i) pay an amount equal to six per cent. of value of the exempted goods and seven per cent. of value of the exempted services subject to a maximum of the sum total of opening balance of the credit of input and input services available at the beginning of the period to which the payment relates and the credit of input and input services taken during that period; or; ]

(ii) pay an amount as determined under sub-rule (3A):

Provided that if any duty of excise is paid on the exempted goods, the same shall be reduced from the amount payable under clause (i) :

Provided further that if any part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs and input services, used for providing such taxable service, shall be taken then the amount specified in clause (i) shall be seven per cent. of the value so exempted :

Provided also that in case of transportation of goods or passengers by rail, the amount required to be paid under clause (i) shall be an amount equal to two per cent. of value of the exempted services.

Explanation 1.- If the manufacturer of goods or the provider of output service, avails any of the option under this sub-rule, he shall exercise such option for all exempted goods manufactured by him or, as the case may be, all exempted services provided by him, and such option shall not be withdrawn during the remaining part of the financial year.

Explanation 2.- No CENVAT credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services.

Explanation 3.- For the purposes of this sub-rule and sub-rule(3A),-

(a) "non-exempted goods removed” means the final products excluding exempted goods manufactured and cleared upto the place of removal;

(b) "exempted goods removed” means the exempted goods manufactured and cleared upto the place of removal;

[vijay kumar]

Dear Mr.Sanjeev Sharma,

The new Rule 6(3) states as follows:

"(3) (a) A manufacturer who manufactures two classes of goods, namely :-

(i) non-exempted goods removed;

(ii) exempted goods removed;or

(b) a provider of output service who provides two classes of services, namely:-

(i) non-exempted services;

(ii) exempted services,

shall follow any one of the following options applicable to him, namely :-

⁴⁹[(i) pay an amount equal to six per cent. of value of the exempted goods and seven per cent. of value of the exempted services subject to a maximum of the sum total of opening balance of the credit of input and input services available at the beginning of the period to which the payment relates and the credit of input and input services taken during that period; or; ]

(ii) pay an amount as determined under sub-rule (3A):"

Since you are provider of exempted and non-exempted services, you are required to follow the procedure prescribed under the Rule 6(3A) since the old sub-rule (2) prescribing maintenance of separate accounts does not exist anymore. Though the common credit C mentioned in 3A is 0 in your case and the whole formula results in NIL liability, by way of abundant caution, you may submit the declaration specified under 3A to the Range Superintendent clearly mentioning that you do not avail any credit on common inputs or common services. However, this would be open for verification by the Department.

[PAWAN KUMAR]

Yes, You need to submit an declaration to your jurisdictional superintendent approaching rule 6(3A) and it will not be withdrawn throught the year.