Service tax on feasibility study report by a foreign compnay

[shaji thomas]

A manufacturer in India appoints one consulting firm to conduct the feasibility study to take over a foreign company. The firm submits the due diligence report and charges service tax in their bill. Whether the Indian company is eligible for the input service credit on the above bills raised by the consulting firm or otherwise?

[Surender Gupta]

There are two provisions one is for availing cenvat credit and second one is for exempted operations. As per the definition provided in rule 2(l), since the amount paid to consulting firm is for the purpose of business, you may avail the credit, but such credit is nowhere related to your manufacturing operations, directly related to operation that may be performed outside India, you need to reverse in by virtue of rule 6. Here, I would like to clarify that this issue is yet to be decided by by the judicial courts and therefore, not free from doubts.

AI Summary

Cenvat credit on feasibility consultancy may be availed for business purpose but reversal required if not manufacturing-related. Payment for a feasibility/due diligence consultancy is for business purposes and may attract cenvat/input service credit, but such credit is subject to reversal because the services are not directly related to manufacturing operations and concern activities performed outside the country; the issue remains judicially unsettled.