Service Tax Payable on Sacrifice Amount of Term Loan -reg

[vinay wakde]

Our company had taken loan from Bank for new project. We have now prepaid the outstanding term loan, payment of sacrifice amount etc. to the Bank. The bank has charged Service tax on other payment i.e. sanction fees of term loan. Kindly let us know whether we are eligible to take CENVAT credit i.e. Input service to the extent of Service Tax paid, as we are manufacturer as well as service provider. Kindly let us know what is the duty paying document for taking credit.

Regards,

VINAY

[Rajagopalan Ranganathan]

Sir,

If the loan is obtained for establishing your factory or for procuring raw material, capital goods which will further used in manufacturing activity then the service received from bank may be treated as input service.

Similarly if the loan obtained is used for providing output service then also you can avail the credit. Otherwise you are not eligible.

[Mahir S]

Yes, credit can be availed for such input credit.

However, after the deletion of word 'Setting Up" from the definition of input service credit, such credit may be disallowed by the department, and hence advisable not to avail such credit.

AI Summary

CENVAT credit eligibility on bank loan service charges depends on whether loan proceeds fund manufacturing or output services. Service tax on bank charges related to a term loan qualifies as an input service for CENVAT credit only if loan proceeds are used for taxable business activity such as establishing manufacturing, procuring raw materials or capital goods, or for providing output services; otherwise credit is not allowable. Deletion of the phrase 'setting up' from the input service definition increases the risk of denial of such credit by authorities.