Eligibility of CENVAT credit

[VAMSI KRISHNA]

Sir,

if service provider opt for composition scheme avaliable under rule 7 of service tax rules 1994....... (air travel)....

my doubt is whether same is eligible for CENVAT credit to receiver or not????????

Thanks

[Rajagopalan Ranganathan]

Sir,

Sub-rule (7) of rule 6 of Service Tax Rules, 1994 stipulated that "the person liable for paying the service tax in relation to the services of booking of tickets for travel by air provided by an air travel agent, shall have the option, to pay an amount calculated at the rate of 0.7 per cent of the basic fare in the case of domestic bookings, and at the rate of 1.4 per cent of the basic fare in the case of international bookings, of passage for travel by air, during any calendar month or quarter, as the case may be, towards the discharge of his service tax liability instead of paying service tax at the rate specified in section 66B of Chapter V of the Act and the option, once exercised, shall apply uniformly in respect of all the bookings of passage for travel by air made by him and shall not be changed during a financial year under any circumstances.

Explanation. - For the purposes of this sub-rule, the expression "basic fare" means that part of the air fare on which commission is normally paid to the air travel agent by the airline." In this rule there is no condition that cenvat credit of tax paid on input services cannot be availed by the service provider. Therefore you can avail cenvat credit.

[Ganeshan Kalyani]

The receiver of the said service can avail credit of the service tax paid under composition sheme by the provider of service if the nexus of the input and output service is established. Thanks.

[Himansu Sekhar]

In the cenvat credit rules, the service receiver is not debarred to take the credit in a situation where the s.tax has been given by the provider on the composition scheme. But there are other conditions which may prevent taking the credit like the service might have been used for personal purpooises.

AI Summary

CENVAT credit: receivers may claim input credit for services paid under a provider's composition scheme when nexus and business use exist. Payment of service tax under the composition option by an air travel agent does not, by itself, bar the service receiver from claiming CENVAT credit; the receiver may avail credit where the requisite nexus between the input service and the output taxable service is established, subject to existing CENVAT Credit Rules limitations such as exclusion for personal or non business use.