CENVAT credit on input services for Tour Operator

[Anil Garg]

Dear Sir,

We are a tour operator, providing Inbound services to Foreign tourist, My query is on CENVAT credit notification came on October 2014, who is eligible to get the CENVAT credit.

Kind Regards,

Anil Garg

[Rajagopalan Ranganathan]

Sir,

According to Sl. No. 9A of Notification No. 26/2012-ST dated 20.6.2012 as amended, a service provider who is engaged in "Transport of passengers, with or without accompanied belongings, by (a) a contract carriage other than motorcab, (b) a radio taxi and (c) a stage carriage is eligible to pay service tax on 40% of of gross value charged by him subject to the condition " CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.

If you provide the exact Notification number then it will be easier to give mu opinion/suggestion on your query.

[Ganeshan Kalyani]

I am of the same view as expressed by Sri Rajagopalan Sir.

[KASTURI SETHI]

Dear Sir,

Notification No.8/2014-ST dated 11.7.2014(effective from 1.10.2014) amends Notification No.26/12-ST dated 20.6.12(Effective from 1.7.2012) adds the following wordings:-

"vii) against serial number 11, in column (4), for the words “input services”, wherever occurring, the words “input services other than the input service of a tour operator” shall be substituted with effect from the 1st day of October, 2014.

2. Save as otherwise provided in this notification, the amendments shall come into force on the 11th day of July, 2014.

Notification No.8/2014-ST dated 11.7.2014

Emphasis is on OTHER THAN INPUT SERVICES.. Remaining restrictions of inputs and capital goods remain the same.

[YAGAY andSUN]

Dear Kasturi Sir.

Please elaborate your reply.

Regards

YAGAY and SUN

[KASTURI SETHI]

M/s.YAGAY AND SUN,

Dear Sirs,

SCENARIO PRIOR TO NOTIFICATION NO.4/17-ST 12.1.17 (Effective From 22.1.17)

Earlier, Service Providers of Tour Operator Service were not allowed to avail credit on input services because of availing abatement of 75%, 90% and 60% (S.No.11 of Notification No.26/12-ST) which is very much on higher side. Vide Notification No.8/14-ST The words “input services other than the input service of a tour operator” were inserted. These 'Other Than " are Hotel Accommodation, Rent-a-cab, Air Tickets etc. which can result in excess accumulation of input service credit in their credit account due to very low effective/applicable rate of ST viz-a-viz very high percentage of abatements. In other words, input service credit to tour operators is allowed in respect of ST paid on 'Renting of Immovable Property Services, Banking Charges etc. after Notification No.8/14-ST. Due to high percentage abatement effective rate of ST works out very low as compared to ST paid on above mentioned input services. For example ; in Central Excise if rate of CE duty on final product 6 % and inputs is 12.5%, this will lead to unjustified over-accumulation of credit. Thus credit was allowed on restricted and relevant input services so as to avoid unjustified accumulation of credit.

I have come to know that it was done on the basis audit objection.

SCENARIO AFTER 22.1.17

Now this problem has been solved by Notification No.4/17-ST dated 12.1.17 (effective from 22.1.17.) Abatement has been rationalized. 40% abatement and ST has to be paid on 60%. The words, "Input services" stand deleted w.e.f. 22.1.17 from exclusion clause/condition.Hence now Input service credit is allowed without any restriction. Relevant extract of notification dated 12.1.17 is appended below:

(i) CENVAT credit on inputs and capital goods used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004.

AI Summary

CENVAT credit on input services clarified for tour operators, aligning abatement treatment with credit availability for specified inputs. CENVAT credit availability for tour operators hinges on creditability of input services and the interplay with abatement rules: an amendment allowed credit on input services other than the tour operator's own input service, creating potential excess accumulation of credit for supplies like hotel accommodation and rent a cab because abatements reduced effective tax on the taxable service; regulatory limits were applied to specified input services and restrictions on inputs and capital goods remained where credit was already taken under the CENVAT Credit Rules, and later rationalisation of the abatement framework broadened input service credit where CENVAT Rules conditions are met.