is cenvat credit eligible to pure agent, Service Tax

[VAMSI KRISHNA]

Dear All

"A" is a service provider of Customs House Agent Service. "B" is importer of some goods. "A" act as an agent on behalf of "B" for clearence of goods. now my question who is eligible candidate ( "A" or "B" )for availing cenvat credit on input services paid by A which covered under a concept of pure agent ( Reimbursement expenditure) ?

"A" used warehouse services from "C" . "C" issued invoice to "A". the same amount recovered by "A" from "B"(satisfied all conditions of pure agent). If "C" charged any service tax in his bill, my doubt is who is eligible to take credit of service tax ???

Posts / Replies

[Rajagopalan Ranganathan]

Sir,

In my opinion in both the cases A is eligible to take credit of service tax paid on input services utilised by him for providing output service. B can avail the credit of service tax paid by A provided he is a manufacturer of excfsable goods liable to pay duty or he is an output service provider. Otherwise b is not eligible to take credit of service tax paid by A.

[Rajagopalan Ranganathan]

Sir,

It is excisable and not excfsable.

[Ganeshan Kalyani]

Sir, when you say pure agent and whatever he expands get from the principal then his liability to pay service tax would be NIL. And when liability is Nil then question of taking credit doesn't arise. This is my view thanks.

[KASTURI SETHI]

Sh.Vamsi Krishna Ji,

I endorse the views of Sh.Ganeshan Kalyani, Sir.

Pure agent provides service for and on behalf of Principal. The word "For" suggests that a service provider (Pure agent) does what Principal wants. The word "On behalf of" suggests that the pure agent does something the Principal ought to have done. Best example is 'C & F Agent'. Principal bears all the expenses i.e. Rent of property, water bill, electricity bill, salary to the staff, transportation charges.

Is the definition of 'Pure Agent' applicable here ? I doubt.

Let us expect opinion of other experts on the issue in detail.

[KASTURI SETHI]

Even job worker cannot be termed as 'pure agent' inasmuch as job-worker himself bears all expenses in spite of the fact that job-worker also works for and on behalf of the principal manufacturer.

[VAMSI KRISHNA]

Thanks for all

Sir

"A" is Service provider of customs house agent. for the purpose of clearance of goods "A" incurred 2 types of expenditures. one of the type of expenditure covered under concept of Pure Agent (Reimbursement expenditure). As per valuation rules what ever expenditure covered under concept of pure agent to that extent need not be considered while calculating service tax on the service of "A" provided to "B". For rest of expenses if other conditions met they are taxable. so "A" is liable to pay some amount of service tax to central govt. now my question is who is eligible candidate to take cenvat credit on bill charged by "C" to "A" ??????

Rajagopalan Ranganathan sir,

In my view it is not a matter wheather "B" is manufacturer or service provider. As per cenvat credit rules if credit is eligible we can take that benefit other wise we include in expenses account.

Ganeshan Kalyani
KASTURI SETHI
Sir,

"A" is liable to collect service tax on his documentation charges and other clearance related charges other than those covered under pure agent. His liability of service is tax is not nil .

[KASTURI SETHI]

Sh.Vamsi Krishna Ji,

Pl. refer to your query dated 29.7.2016. Credit can be taken by 'A' but do not call CHA a pure agent.

[Ganeshan Kalyani]

Sir, service tax credit is eligible on input service which has nexus with the output service provided and it is taxable.

I too had assumed that CHA is a pure agent then how could he be able to avail the credit and so had posted counter reply. Thanks that you have clarified in your recent reply.

Sri Kasturi Sir, I remember your advise to me that an expert should not ponder upon to post his reply immediately. He has to ask questions, study, analyse and then attempt to answer. This proved right in the experience as well. Thanks for the advise.

My request to the quesrist to raise the query with sufficient required informations. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Yes, Sir. Sometimes querist changes stand or posts incomplete query or query is not drafted properly. How CHA can be pure agent ? Still I am shocked.

[VAMSI KRISHNA]

Dear all

As per service tax valuation rules

Rule 5(1) of Service Tax (Determination of Value) Rules, 2006)]

(2) The expenditure or costs incurred by the service provider as a pure agent of the recipient of service shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:-

(i) the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;

(ii) the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;

(iii) the recipient of service is liable to make payment to the third party;

(iv) the recipient of service authorizes the service provider to make payment on his behalf;

(v) the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;

(vi) the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;

(vii) the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and

(viii) the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

If all the above specified conditions are satisfied by "A" . then "A" is not liable to collect tax on aforesaid reimbursement. If conditions are not satisfied he should collet tax from "B". that implies in invoice issued by "A" to "B" there are two portions (1) taxable (2) not taxable. If input service ( from "C" ) is covered under reimbursement expenditure ( that is all the aforesaid conditions are met in other words not taxable ). now my question is who is the eligible candidate to take service tax credit collected by "C" ????????????

[Ganeshan Kalyani]

Sir, in my view in such situation 'B' is eligible to take credit, provided the documents are in accordance with Cenvat Credit Rules. Thanks.