Reversal of Cenvat credit under rule 6(3A) of Cenvat credit rules 2004 : 2/3

[satish kumar]

Assessee ‘B’ provides following services:

1. Taxable Service - Supply of food in Restaurant

‘B’ pays service tax @ 40% of amount billed/ received from customers after availing abatement of 60%

1. Exempt Service – Interest from bank

‘B’ receives interest from bank on fixed deposits

‘B’ avails CENVAT credit on common services used for providing abovementioned taxable and exempt services. Hence, ‘B’ needs to reverse proportionate CENVAT credit attributable to provision of exempt services under rule 6(3A) of CENVAT credit rules 2004.

		Option 1	Option 2
Particulars	Description of Service	Revenue as per P&L a/c (Rs)	Revenue on which Service tax is paid (Rs)	Remarks
Taxable Service	Restaurant service	1,00,000	40,000	Service tax is paid on 40% as per provisions of Notification 24/2012
Exempt Service	Interest on fixed deposit	10,000	10,000	Covered under Negative list as per section 66D of Finance Act 1994
CENVAT Credit availed on Common services		₹ 25,000
Formula for reversal of CENVAT credit on Common services		Exempt Services provided ------------------------------------ X [ Cenvat Credit availed on Common (Exempt services provided + Services ] Taxable services provided)
Cenvat credit to be reversed		10,000 ----------- X 25,000 [10,000 + 1,00,000] = ₹ 2,273	10,000 ----------- X 25,000 [10,000 + 40,000] = ₹ 5,000

According to section 65B(51), 'taxable service' means any service on which service tax is leviable under section 66B

Which option is correct and why ?

[Sonali Sharma]

Your very idea is based upon the concept of common input services. By my experience I am almost sure that there is no common input service between restaurant services and interest received on fixed deposits in practical world.To be clearer, I feel that there is no input service for interest received on deposits. (In fact receiving interest misses the element of services though mentioned in Negative list as a clarification sort of.)

So when no common service is there rather there is no input service for interest receipts, there is no need to apportion the input services credit which is purely attributable to restaurant service.

AI Summary

Reversal of Cenvat credit may not apply where no common input service exists between taxable supply and exempt interest. Issue: apportionment of Cenvat credit where taxable restaurant services and exempt interest receipts coexist. Two apportionment methods produce different reversal amounts depending on whether total revenue or taxable-service revenue (post-abatement) is the denominator. Expert advice concludes that interest receipts are not an input service and there is no common input service with restaurant operations; therefore credits solely attributable to the restaurant need not be apportioned or reversed.