service tax credit adjustment -reg

[Ramakrishnan Seshadri]

Dear Sir,

We are clearing as such removal goods to our vendor for manufacturing components of our finished products. We had a doubt. can we adjust the service tax credit available for this removal.

Please clarify with case laws

Thanks & Regards,

S.Ramakrishnan

[Rajagopalan Ranganathan]

Sir,

As per rule 2 (p) of Cenvat Credit Rules, 2004, “output service” means any service provided by a provider of service located in the taxable territory but shall not include a service,-

(1) specified in section 66D of the Finance Act; or

(2) where the whole of service tax is liable to be paid by the recipient of service.

In view of the above if you pay service tax under RCM as consignor, then it is not output service and hence you cannot take credit of service tax paid for removal of inputs as such to your vendor for manufacturing components.

AI Summary

Output service exclusion prevents claiming service tax credit where the consignor pays tax under reverse charge mechanism. Rule 2(p) of the Cenvat Credit Rules, 2004 excludes from the definition of output service any service where the whole of service tax is payable by the recipient; therefore service tax paid by the consignor under the reverse charge mechanism for removal of inputs as such to a vendor is not an output service of the consignor and cannot be taken as Cenvat credit.