Service Tax CENVAT on Software Purchase for R&D Purpose

[Asked by Guest]

Dear Sir,

we have purchased a Software for R&D Purpose software company has charged professional service charges & charged Service tax on his invoice. my query is :

Can we entitable to avail CENVAT Credit of the same or Not.

Please give your legal opinion and reference of rule.

Regards,

Rahul Patel

[YAGAY and SUN]

Dear Rahul,

You may avail the CENVAT credit on the software as Input Service.  Please check the definition of Input Services in this regard.

Software

Eligible if in relation to manufacture or provision of taxable goods/services, modernization or repairs of factory or office, storage, recruitment and quality control, accounts, audit, financing, sales promotion, computer networking

[Velkumar S]

Dear Rahul, Any input service should satisfy the definition of input service as per Rule 2(l) of CCR, 2004. In my opinion, software used for R and D purpose by a manufacturer is neither used in relation to manufacture nor in relation to any taxable output service and hence not qualify as input service. This view would change and will become a input service, if R and D is the business of the organization and the income is received from sale of result which is liable to service tax.

Regards,

Velkumar S

AI Summary

CENVAT credit on R&D software: entitlement depends on whether the software charge qualifies as an input service.
Entitlement to CENVAT credit for software service charges depends on whether the software fee qualifies as an input service. One view permits credit when the software is used in relation to manufacture, provision of taxable goods/services, or ancillary business functions. An alternative view denies credit for software used in internal R&D unless R&D is the purchaser's taxable business and its outputs are supplied for consideration liable to service tax.