Set off of service tax paid on rent

[JOSHIL JAIN]

One of my client is a partership firm which runs a authorised service station as well as dealership of reputed four wheeler co. It gives rent for workshop and showroom for cars. It pays service tax on the rent paid to owners. Now my question is whether it can set off service tax paid on rent ( workshop as well as showroom) from serice on which it receive service tax ( authorised service station and business auxilary services). Whether it can set off service tax on rent paid for both ( showroom as well as workshop) even if it received input service tax from workshop only.

[nitish jain]

Yes I cannot tell you the exact saction but all service tax paid by the company can claim for credit on service tax collected by providing service.Only thing to check is the bill of credit availing services shouild be in the name od compony or entity.

[Rama Krishana]

Indeed credit of service tax paid on rent is allowed to set off for payment of service tax on output servcies. But the question is whether whole of the amount is allowed or part. From the showroom you are also selling cars which are not chargeable to service tax being trading transaction and therefore you are not entitled for 100% credit. From the workshop, there is sale of parts and accessories while repairing the vehicle, therefor no 100% credit. In my view you should avail proportionate credit in the ratio of taxable turnover (under service tax) and non taxable turnover.

AI Summary

Service tax credit on rent can be set off but must be apportioned when turnover mixes taxable and non taxable supplies. Service tax credit for rent paid is available for set-off against output service tax provided invoices and naming requirements are met; where premises are used for both taxable services and non taxable trading, the credit must be apportioned and limited to the portion attributable to taxable turnover, yielding a proportionate credit based on the ratio of taxable to total turnover.