Classification - exempted and non-exempted services

[chaganti srinivas]

Services provided in Jammu & Kashmir. Is it necessary to reverse 8% of value, when separate accounts are not maintained. How to classify the Services, Exempted or Non-Taxable service? when CENVAT credit rules not applicable to J & K as per the Cenvat Credit Rulesub rule (2) of Rule 1. Please refer the case laws if available.

[Mukesh Kumar]

As you have pointed out the provisions of rule 1(2) of the Cenvat Credit Rules, 2004, cenvat credit of service tax is not available in the state of Jammu & Kashmir. IT is in consequence of the fact that no service tax is payable in the state of J&K. The problem / issue arises as per the query only if you obtain centralized billing or accounting. If you are maintaining separate accounts, which should be otherwise also, the issue of applicability of provisions of rule 6 can not arise. Where you take cenvat credit on the common input service which is used in J&K and other part of India, you should take the cenvat credit in proportion to value of service on which you are liable to pay service tax. Indeed, if you are unable to segregate the amount of input service tax credit, you may refer the formula prescribed in rule 6(3) read with rule 6(3A).

AI Summary

Clarification on Service Tax Exemption and CENVAT Credit in J&K under Cenvat Credit Rule 1(2), 2004 A query was raised regarding the classification of services as exempted or non-taxable in Jammu & Kashmir, particularly when separate accounts are not maintained and CENVAT credit rules do not apply as per Rule 1(2) of the Cenvat Credit Rules, 2004. The response clarified that since no service tax is payable in Jammu & Kashmir, CENVAT credit is not available there. The issue only arises with centralized billing or accounting. If separate accounts are maintained, Rule 6 does not apply. For common input services used in J&K and other parts of India, CENVAT credit should be proportionate to the taxable service value.