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

Cenvat credit limitation: allocate input service credit proportionately where services span non taxable and taxable territories. No service tax is payable in the non taxable territory under the Cenvat rules, so cenvat credit is not available for services consumed solely there. With centralized billing or common input services used both inside and outside that territory, apportion input credit and claim cenvat only for the portion relating to taxable services; if values cannot be segregated, apply the prescribed apportionment formula for common input services.