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TMI BlogSERVICE TAX ON TRADING ACTIVITYX X X X Extracts X X X X X X X X Extracts X X X X ..... Sir, Is Service tax is liable in trading activity . Please guide . SACHIN - Reply By pradeep khatri - The Reply = Trading Activity as Exempted Services Consequences thereof The 2011 Budget proposals have among other things in many changes in the CENVAT credit Rule, 2004 and in one key change an explanation has been added to clause (d) of Rule 2 of these rules to deem the activity of trading as exempted services. Seemingly, this change has come as an off shoot of numerous audit findings and Tribunal decisions in Revenue s favor that found input credit, to the extent it had been used in relation to trading activities, is not allowable. As for the inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion behind introducing this change, it is quite clear. Even then, the methodology adopted does not appeal to be appropriate as it gives clear sign to effectuate extensive effects which could not have been imagined even at the time of drafting it. This new provision is set to play a decisive role in places where the words exempted services have been used in CENVAT credit Rules, 2004 where there is a requirement on cases where the inputs or input services have been used in relation to exempted services either to maintain separate accounts or to pay 5% on the value of exempted services, it is also to call for similar requirements when such use is in relation to tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding. Also, given that a value is required to charge an amount equal to 5% thereon, in cases where the inputs or the input services have been used in relation to trading and there cannot be any value determined under Section 4 or 4A for this purpose, a supplementary provision has been introduced in clause C of sub-rule (3D) of Rule 6 of the CENVAT credit Rules, 2004 to deem that the value in such cases shall be the difference between the sale price and the purchase price of the goods traded. It is likely enough that the intention of this new provision is only to deny credit in cases where the input service had been used in relation to Trading by treati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng it on par with Exempted services but the actual execution has diverted it to go too far and to cause effects which could have been even thought of a the time of drafting it. Let us see some of the consequences this new provision is likely to result in most probable situations: - 1. In a situation where the input service credit has been used for providing exempted services by a service provider [not being trading] it requires either a reversal of proportionate credit taken thereon or a payment of 5% on the value of exempted services. 2. In a situation where the input service credit has been used in relation to trading of non-CENV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT availed goods by a service provider, it creates both a sale and deemed exempted service and yet requires only payment of 5% on the value of service i.e. the difference between the purchase price and sale price. 3. In a situation where the input service has been used in relation to trading of CENVAT availed goods by a service provider, it creates both a sale and deemed service and requires payments of an amount equal to credit taken and also an amount equal to 5% on the deemed in value. 4. In a situation where the input service has been used in relation to trading by a manufacturer of bought out goods on which no CENVAT has been taken, it creates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both a sale and a deemed exempted services and yet requires only payment of 5% on the difference in value between the purchase price and the sale price. 5. In a situation where the input service has been used in relation to trading by a manufacturer of his CENVAT availed inputs, it creates both a sale and a deemed service to require reversal of the actual credit taken by him on the inputs capital goods and also payment of 5% on the value (difference) of trading. As perceived from the above, in the face of a certain dual liability, one is discouraged from trading on of CENVAT availed inputs as such, even when Rule 3(5) of the CENVAT credit Rules, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04 allows it as a lawful procedure. Further, the word Trading has not been defined in the Rules and this give room for as many interpretations. This apart, the new provision is well poised to create another inconsistent situation which also appears to have not been taken note before introducing it. In a situation, where the CENVAT credit availed inputs are removed as such to sister units as a stock transfer, the involvement of a removal is definitely there but the involvement of trading would still be a big question. Importantly even the sales tax/vat provisions do not treat such transactions as sale/trading. In the event of considering such transactions as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trading, this new provision is to cause a certain inconsistency and disparity in the liability between removal of inputs/capital goods as such to sister units and to others. In overall, the newly introduced provision, has come out of bounds giving room to divergent interpretations and undesired consequences and it needs to be amended in a manner to be applied restrictively only in a situation where the input service credit has also been used in relation to trading activities relating to non-CENVAT availed goods and not when CENVAT credit availed goods are traded as such. - Reply By neeraj kumar - The Reply = No trading is not liable for service tax as per service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax provisions. - Reply By dipsang vadhel - The Reply = 1.If you undertake only Trading activity then no service Tax is applicable. 2. Howevr, if you are providing taxable service and also undertake trading activities, you should keep in mind provisions of Rule 6 CCR while availing CENVAT credit for the purpose of Rule 6 Trading is an exempted service and you have to comply with rule 6 of CCR while taking CENVAT credit. Hope this clarifies your doubt. - SERVICE TAX ON TRADING ACTIVITY - Query Started By: - SACHIN SHAH Dated:- 15-7-2011 Service Tax - Got 3 Replies - Service Tax - Discussion Forum - Knowledge Sharing, reply post by an expert, personal opinion Tax Management India - taxmanagementindia - taxmanagement - taxmanage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mentindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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