Import of service for rendering exempted service in India

[MANOHAR KALBURGI]

Hi Sir/ Madam

Case is like this,

Entity engaged in the intermediary services where it imports certain software license after paying Service Tax at the prescribed rate and once the license is available the same is Sold to the educational institution in India (say IIT, IIM etc).

My doubts goes like this,

1. When Import is done towards sale of exempted service(sale to IIT,IIM) it is not possible to take ITC because sale made to such institutional body is exempted from ST .

2. Now how the service tax paid on import of service can be utilized? or can we take it as ITC if other services are rendering by the Assessee where such service are to taxable services?

3. Whether import of such services are exempted from the ST? because sale is ultimately end up exempted sale in India(i.e IIT)

3. And IIT is to be considered as Governmental Authority since it is set up by an act of Parliament and for the purpose of National importance so it is exempted from ST from point of view.

Please look into this case and provide me your valuable opinion

Thanks in advance

[KASTURI SETHI]

Dear Mr. Manohar Kalburgi Ji,

We are talking about Service Tax. Query-wise my views are as under :-

1. Yes.

2. Yes. One-to-one correlation is not necessary. As per Rule 3(4)(e) of Cenvat Credit Rules, 2004, "The Cenvat Credit may be utilized for payment of Service Tax on anyoutput service.. It is obvious that output service must be taxable.

3. Yes. Vide Notification No.25/12-ST dated 20.6.12 (Item no.34). W.e.f. 1.12.16 exemption shall not apply to OIDAR. For more clarification read the decision of AAR, Uttarakhand reported as 2018 (14) G.S.T.L. 317 (A.A.R. - GST) = 2018 (6) TMI 1126 - AUTHORITY FOR ADVANCE RULINGS, UTTARAKHAND in respect of IT Development Agency. Although this decision pertains to GST period, yet it is helpful to understand the issue involved.

4. Yes. IIT is Government Authority. It is covered under the definition of 'Government' under Section 65B (26 A) of the Finance Act and Notification No.25/12-ST dated 20.6.12 as amended. Exemption is available.

[MANOHAR KALBURGI]

Thank You for Your valuable reply and have a great day.

[KASTURI SETHI]

Welcome Sir. Have a healthy day !

AI Summary

Cenvat Credit: credit on imported services usable only against taxable outputs; exemption for government educational institutions may apply. Imported software license fees attract service tax at import but service tax paid cannot be taken as Cenvat credit when the imported service is used to supply an exempt output; Cenvat credit may nevertheless be utilised to pay service tax on other taxable output services without one-to-one input-output correlation. Exemption for supplies to notified governmental or educational authorities is available and institutions like IIT qualify as Government Authority, although the exemption excludes certain OIDAR services by later amendment.