Removal of Input as such one unit to Other unit - Reversal of Porportionate Service tax credit - reg

[venkataraman swaminathan]

We are manufacturers of automobile components . We have 2 units Unit 1 & Unit 2 - As and when needed we are clearing Inputs as such from one unit to other unit on payment of appropriate duty of excise ( ie. reversal of cenvat credit taken) . Now Excise audit raised one audit point , asking us to reverse the service tax credit taken on common services like security , contract manpower etcc.. or 7% of the input as such clearance value. We are availing eligible service tax credit on various input services and also paying service tax under RCM.

Request your legal opinion on this audit point from legal experts. Thanks v.swaminathan.

[Rajagopalan Ranganathan]

Sir,

When you transfer credit availed inputs from unit-I to Unit-II you have to reverse the credit availed on such inputs. I want to know whether the input services namely security service and contract man power service are common to unit I & II. In that case it can be distributed between unit I & II. These input services are in no way connected with transfer credit availed inputs from unit I to Unit II. Hence the audit objection is sustainable and the same may be contested.

Moreover reversal of input service is required under the law only when the input services are utilised in the manufacture of dutiable and exempted final products or used in providing taxable and exempted output services.

[venkataraman swaminathan]

DEar Sir

Thanks for your valued opinion and views. The services like Security and Contract Man power etc.. are individual and not common. 2 Units are situated in different location in different area /street. We are having separate secuirty and man power factory wise and not common . hope I have given reply to yor expected query. Thanking you .v.s.

[Rajagopalan Ranganathan]

Sir,

Please insert the word 'not' before the word sustainable. The error is regretted. In respect of inputs you are taking credit of duty paid on the input and reverse the same when you remove the input as such. Input services procured by you do not play any part in paying duty on the inputs and the same is paid by supplier of the input.

[Suryanarayana Sathineni]

I feel, the audit cannot go the extent demanding reversal of cenvat credit taken on common services on the inputs cleared as such. At the most they can ask to reverse the ST paid on transportation and other related ST amounts paid on the connected services used in procuring the said inputs.

Further Rule 3(5B or C ) is very clear that only the cenvat credit taken on inputs at the time of receipt need to be reversed/paid as duty and the rule is silent on ST. Hence, I strongly feel that you need not reverse the credit of ST.

Further, there few Tribunal decisions on this issue and I remember on such decision on the issue in the case of Chitrakoot industries. You may kindly refer the same .

Regards

Surya

[venkataraman swaminathan]

DEAR Sir

Thank u for all the suggessions and valued opinions and guidance . Thanks.v.s.

AI Summary

Reversal of service tax credit not required on inputs-as-such transfers unless services are used for mixed taxable and exempt outputs. When inputs transferred 'as such' between units require reversal of cenvat duty credit on the physical inputs, this does not automatically mandate reversal of service tax credit on separately procured input services. Reversal of input-service credit is required only where those services are used for both taxable and exempt outputs (mixed use); where services are exclusively consumed by separate units, reversal of ST credit is not triggered and the audit demand to reverse ST on inputs-as-such clearance is unsustainable.