Is software licence input service to manufacturer?

[Yatin Bhopi]

We are manufacturer. Recently we have purchased new computers along with software licenses which are installed in factory wherein accounts, marketing, purchase etc. departments works. License are purchased for Microsoft office, and windows 8 and others software required for official use. Without these license we cannot operate computers. Since computers are installed in offices we have not avail CENVAT on any computers (as per capital goods definition). Without these licenses we cannot operate computers in Finance/marketing/purchase department.

My query is:

Can we treat this as a input service and avail the CENVAT credit on service tax charged on software licenses?.

Please share your views

[YAGAY andSUN]

Dear Yatin,

In our opinion, No CENVAT credit would be available on such services, though it is debatable issue.

if computers/software/license are directly linked with the manufacturing process or used in factory in or in relation to manufacture of finished product then it may claim CENVAT credit on Input Services. If used by other department except manufacturing then you cannot avail the CENVAT credit.

Regards

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

[Mahir S]

As the software license are not used/required in or in relation to the manufacture of finished goods, therefore credit cannot be availed thereon.

[Yatin Bhopi]

But input services definition includes Accounting, marketing, purchasing. In todays world without operating computers it is difficult task to run the business. As like cenvat credit on telephone / mobile is allowed even though there is no direct relation with manufacturing activity but it is essential part to do the business.

[YAGAY andSUN]

Dear Yatin,

As discussed earlier it is a highly debatable and arguable matter. Whether, Input Service definition describes any thing about software license as input service? Further, you capitalize the software license or treat it as revenue expenses.

Regards,

Team YAGAY and SUN

(Management and Indirect Tax Consultants)

AI Summary

Input service eligibility for software licenses: generally not available for CENVAT unless directly linked to manufacture. Manufacturer purchased software licenses for office computers used in non-production departments and queried whether service tax on those licenses qualifies as input service for CENVAT credit. The prevailing view in the discussion is that CENVAT credit is not available unless the software license is directly linked to or used in relation to the manufacture of the final product. The issue is described as debatable, and accounting treatment (capitalisation versus revenue expense) and demonstrable nexus to factory operations are noted as determinative factors.