Service Tax on non dutiable items.

[Samik Chaudhuri]

Sir

I am in manufacturing co we have taken credit on input services such as GTA, Security & Works Contract. Till date we have not started the utilization of credit. But department asked me before utilization of Service Tax Credit we have to reverse the duty involved in making non dutiable items otherwise 6% duty will be applicable on credit utilized amount. We never take credit on GTA for input service related to non dutiable items but how can we segregate the Security & Works Contract for non dutiable items. Please advise me.

With thanks & regards

Samik Chaudhuri.

[DR.MARIAPPAN GOVINDARAJAN]

As per CENVAT credit rules input service credit can be taken immediately on receipt of invoice subject to the condition that the invoice is to be paid within three months from the date of invoice; otherwise the credit taken is to be reversed. Whether in your books of account you have taken the credit for the same? Please note credit can be taken within one year from the date of invoice otherwise it will be lost. Once you have taken the credit there is no time limit for utilization of credit.

CENVAT credit cannot be taken for exempted goods or services. Rule 6 provides for the calculation of the credit for exempted goods.

[Ganeshan Kalyani]

If you can justify that the credit you have taken and intend to utilize is only of the input corresponding to the dutiable goods. either you can take entire credit and reverse the credit as envisages in the Rule or maintain separate books to identify the input that are used in exempted or dutiable goods.

AI Summary

CENVAT credit allocation: apportion or reverse input service credit when services relate to exempt (non-dutiable) goods. Under CENVAT rules, input service credit is taken on receipt of invoice subject to invoice-payment and time-to-take conditions; credit is not admissible for exempted goods or services, and Rule 6 governs the computation and apportionment of credit for exempt supplies. A manufacturer may either take full credit and follow prescribed reversal mechanics or maintain separate accounts to identify inputs used exclusively for dutiable goods and thereby justify utilization without reversal.