Cenvat Credit of Service Tax paid on Director sitting Fees

[Kamal Jhanwar]

Can we avail the cenvat credit of service tax paid on director sitting fees? Pls discuss the relevant provision.

[Rajagopalan Ranganathan]

Sir,

In respect of sitting fees paid to Director service tax is payable by the company under Reverse Charge mechanism (RCM). Therefore it is an input service in connection with development of company's business and hence the same is eligible as credit under Cenvat Credit Rules, 2004.

[Kamal Jhanwar]

Sir,

I wish to submit that vide Notification No. 3/2011 Central Exicse (N.T.) dated 01.03.2011 as applicable w.e.f. 01.04.2011 , the definition of Input Service under CCR, 2004 has been amended. Prior to this notification, Includes part of definition talks about the "Activities relating to Business SUCH AS accounting, auditing, ........". On the basis of this definition, service provider used to take the cenvat of all the services which were connected to the development of the business. However after amendment as mentioned above, you will appreciate that Activities Related to business has been deleted from includes part of definition. Therefore, definition of Input Service becomes very specific with a limited scope. In view of the above, It is not possible for assesse to avail the cenvat credit of those services which are related to business and service tax paid on director sitting fees under Reverse Charge Mechanism also.

[Rajagopalan Ranganathan]

Sir,

As per the amendment carried out by Notification No. 3/2011-CE (NT) dated 1.3.2011 (w.e.f. 1.4.2011) 'input service' means any service, -

(i) used by a provider of taxable 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, and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal.

If the fees paid to the Director for sales promotion activities and service tax is paid by the company on RCM then the same is eligible to be availed as credit. This is my opinion. Of course the agreement between the company and the director will determine the eligibility of credit of service tax paid.

[Ganeshan Kalyani]

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Cenvat Credit in respect of service tax paid for Director service under reverse charge is eligible.

[sudhansu nayak]

Sir,

Cenvat credit on director sitting fees would basically depends on the agreement between company & concerned director, if the agreement have direct nexus with the activities like sales promotion and other (Within inclusive part of the input service definition), Then it is eligible otherwise not.

AI Summary

Cenvat credit for director sitting fees allowed when fees relate to specified input services and have requisite contractual nexus. Cenvat credit for service tax on director sitting fees under reverse charge is available only if the fees remunerate services that satisfy the amended input service definition-i.e., are used to provide an output service or in relation to manufacture and fall within the included categories such as sales promotion; eligibility depends on the agreement and factual nexus between the director's services and those specified input-service activities.