Claiming service tax on subsidized services allowed??

[nilesh prithani]

Hi!!

We are a service oriented company in Hyderabad and recently in our annual audit we were disallowed credit for the below service tax we claimed:

1. Restaurant Bills (staff and management reward)

2. Hotel Bills (training session)

3. Transport (for raw materials)

Issue is that the auditor told us that we cannot claim service tax amount on any services where the service tax is not completely 15% on the basic amount.

Please suggest!!

Thanks!!

Nilesh Prithani

[Himansu Sekhar]

Leaving aside the credit availment on the subject bills on merit, I suggest that there is no restriction for taking credit when the stax has not been paid on the entire amount. The view cited to you about the disallowance of credit appears to be incorrect

[KASTURI SETHI]

Audit is correct. There are certain restrictions. However, regarding point no.3 I want elaboration.

[nilesh prithani]

Thanks for your inputs. Further to elaborate the issue please find below the scenarios:

Scenario 1: Our management team and directors keeps on travelling for business which results in lot of hotels and restaurant bills. The same is reimbursed by the company by cheque to them. The invoices are in the name of employee or director.

So will we be eligible to claim service tax on those bills??

Scenario 2: We have conferences related to industry to participate across the country. And the registration, stay and food bill are all paid by the company directly by card and billed in the name of the company. Will we not be eligible to claim those taxes?

Scenario 3: We have various training sessions in different hotels for our employee to understand new product. We have invoices from hotels against those sessions as well. Will those be also disallowed??

Will be of great help for me if you can give some inputs on this scenarios mentioned in details.

Looking forward. Nilesh

[Himansu Sekhar]

Scenerion 1: credit not to be allowed because these are for individual use and bills are not in the name of company.

Secerio 2 and 3: no restriction on credit as the uses are for the company.

But the non eligibilty of credit when the Stax on full bill is not charged, such a view is not correct.

Kindly understand the situations.

[KASTURI SETHI]

Dear Querist,. Also elaborate Point No.3. Transportation of raw material. What raw materials ? Any manufacturing activity ?

[Ganeshan Kalyani]

I agree with the views of Sri Himansu Ji.

[Himansu Sekhar]

Thank you sir

[KASTURI SETHI]

Dear Querist, In view of elaboration of queries , point-wise reply is as under :-. Point No.1 & 2 Restriction is for service provider and not for service receiver. You are to establish nexus between input service and output service. Bill should be addressed as such. Name of employee who stayed in hotel, Designation, C/O. Name of your company. Your books of account should speak the purpose of visit and bill should be correlated with the visit. Restaurant bills should be addressed in the name of your company and not individual. Reward function can be correlated with output service. If above conditions fulfilled, credit is admissible. Similarly, if transportation of raw material is linked with output service , credit is admissible. There is no substance in the contention of auditor that credit is disallowed on the ground that ST was not paid at 15 %.

AI Summary

Input tax credit entitlement hinges on nexus and invoices addressed to the company, not on full-rate billing.
Credit for service tax depends on establishing a nexus between the input service and the taxable output and on documentary attribution of the bill to the company. Invoices in an individual's name for personal reimbursements do not support credit. Bills billed to the company for conferences, training or business travel, and transport of raw materials linked to output activity, support input tax credit when company records corroborate purpose and use. A blanket disallowance because tax was not charged at a particular rate is not substantiated.