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

[satish kumar]

Assessee ‘C’ provides following services:

1. Taxable Service - Construction of Flats which are sold before completion

‘C’ pays service tax @ 25% of amount billed/ received from customers after availing abatement of 75%

1. Exempt Service – Interest from bank

C’ receives interest from bank on fixed deposits

‘C’ avails CENVAT credit on common services used for providing abovementioned taxable and exempt services. Hence, ‘C’ 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	Option 3
Particulars	Description of Service	Revenue as per P&L a/c (AS 7) (Rs)	% of Demand on which Service tax is paid (Rs)	Demand raised (Rs)	Remarks
Taxable Service	Construction service	80,000	25,000	1,00,000	Service tax is paid on 25% as per provisions of Notification 26/2012
Exempt Service	Interest on fixed deposit	10,000	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 ----------- [10,000 + 80,000] X 25,000 = ₹ 2,778	10,000 ----------- [10,000 + 25,000] X 25,000 = ₹ 7,143	10,000 ----------- [10,000 + 1,00,000] X 25,000 = ₹ 2,273

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 ?

[Venkataprasad Pasupuleti]

Interest on fixed deposit need not be considered for reversal of credit u/r 6(3)r/w 6(3A) of CCR, 2004.

Please see Explanation I followed by Rule 6(3D) of CCR, 2004

[Venkataprasad Pasupuleti]

As per my view, Option 3 is correct. This is because turnover shall be determined going by Section 67 of Finance Act, 1994. As per this, Value is 1.00L (construction) and not as per P&L A/c.

further if you take 25,000/- as taxable value for reversal calculation then you have to treat balance 75,000 as exempted service which is not required as per CCR, 2004

AI Summary

Reversal of Cenvat credit: interest income excluded from reversal calculations under Rule 6(3A), use taxable value for apportionment. Interest on fixed deposits, being an exempt receipt under the negative list, need not be included for reversal of CENVAT credit under Rule 6(3) read with Rule 6(3A) and the Explanation to Rule 6(3D); turnover for apportionment must be determined by valuation rules under Section 67, using taxable value of construction receipts rather than P&L figures, which supports the calculation approach in Option 3.