TaxTMI 
TaxTMI 
TaxTMI 
Prepared By:
CA Preeti Parihar
Ankit Palgauta
There are a no. of cases where the service provider also supply the material alongwith the services. In such cases, consideration received by him is inclusive of value paid for goods. Since the service tax is leviable on the service component, value of goods should not be included in the assessable value. Government had prescribed Notification no. 01/2006 ST dated 1.3.2006 wherein abatement at the prescribed rates was allowed in respect of services specified there under. However, in case of abatements, Cenvat credit cannot be availed.
The service providers opting for the abatement scheme also avail the input services on which service tax is paid. Since they are not able to take the credit of the same, the value of input service tax ultimately forms the part of taxable value on which again the service tax is charged by the service provider. Thus, cascading effect exists due to tax paid input services in the cases where the abatement is opted. This is common in case of services like Convention center or mandap with catering, Pandal or Shamiana with catering, Coastal shipping, Accommodation in hotel, Railways goods, Railways passengers, construction etc. We had also prepared an article namely “Abatement Scheme – Defeating cascading theory” which was published on a leading website of taxation.
Now, in the Budget 2012, Government has introduced abatement rates for various services wherein Cenvat credit of input services is allowed. In some cases, credit of even capital goods and inputs is also allowed. These services are listed as follows:-
S. no. | Description of service | Credit allowed |
1 | Convention center or mandap with catering
| All credits except on inputs, of chapter 1 to 22 are allowed |
2 | Pandal or Shamiana with catering
| |
3 | Accommodation in hotel etc | Input services |
4 | Railways goods
| All credits are allowed– inputs, capital goods and input services |
5 | Railways passengers |
Thus, this is a welcome step by the Government. However, the Government has introduced Cenvat facility for selected services, not on all services which have same problem. For example, in Construction services, the credit of service tax paid on input services availed from a sub- contractor by the main contractor is not allowed. This is the example of one service and there are many such services. Thus, the problem still exists in the system and these are to be rectified soon by maintaining the equity on similar-natured services.