Is Co-relationship required between input service & output service for cenvat purpose ?

[Sumeet Tholle]

Dear Sir,

One of the my client is having hardware trading business and paid service tax on telephone, CA, GTA Bank charges etc service.

Along with this, he has rented one shop having rent ₹ 1lakh pm and collecting and paying Service Tax.

Can he utilize Service Tax paid for CA, Telephone,GTA related with hardware business towards liability of renting services ?

Pl. Guide with details.

Thanks.

Sumeet Tholle

CA

[YAGAY andSUN]

Dear Sumeet,

Since Trading is exempted service therefore your client would not be able to avail CENVAT credit on Service Tax paid on CA Fees, Telephone, GTA Services related with Harware business towards liability of renting services.

Regards,

YAGAY and SUN

(Management, Business and Indirect Tax Consultants)

[Rajagopalan Ranganathan]

Sir,

According to rule 2 (l) of CENVAT Credit Rules, 2004-

“input service” means any service, -

(i) used by a provider of output service for providing an output service; or

(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal.

Trading is nit an output service. Therefore if any of the input service is related to Trading then you are not eligible to avail the credit in respect of input service. As far as renting of immovable property service is concerned you have to establish the relation between the input service and output service. Then only you are eligible to avail the credit of service tax paid on input services.

[DR.MARIAPPAN GOVINDARAJAN]

Your client cannot take and utilize CENVAT credit.

[Himanshu Naik]

What if the business has 60 to 70 % revenue from services

AI Summary

Cenvat credit entitlement requires a demonstrable co-relationship between input services and the taxable output service before credit is allowed. CENVAT credit is allowable only when input services are used in providing an output service; trading as an exempted activity disqualifies credit on inputs like CA fees, telephone and GTA for meeting liability on renting services. To claim credit against a taxable output such as renting of immovable property, the taxpayer must establish a clear co-relationship between the input services and that taxable output service.