Utilising Cenvat Credit for making service tax payment

[sunil mehta]

Daer Sir, A mfg. of textiles product(twisted yarn & grey cloth) also receives commission from yarn spinner on yarn sold by them.The mfg.concern pays the ser.tax due on commission income under bus.auxilliary category.The company also manufactures TFO machines on small scale basis for sales purpose and for captive use.It gets some m/c parts processed on job-work basis on which it pays ser.tax. Thus,they are mfg.of taxable as well as exempted goods.It wants to take cenvat credit set-off on ser.tax paid by them on 'job charges' as input services against service tax payable by them on commission income. Query:1)Whether the cen.credit set-off is legally correct? Note:The input ser.tax on job charges(on m/c) has no direct nexus with comm.income earned on sales of yarn.Only thing common is that all activities are done by one concern. Thanking you, sunil mehta

[Surender Gupta]

I think your case have some potentials for effective tax planning. For this purpose, detailed information is required. Indeed, if you take cenvat credit wrongly, you would be in trouble in future.

[Madhukar N Hiregange]

On the commission received they would be liable to pay the servcie tax as a service provider. On the ST paid on job work first of all it should ensure that the process does not amount to manufacture. If manufacture then there is no ST. Since the job work has nothing to do with the commision the same would not be an input service and therefore would not be eligible as credit.

AI Summary

Textile Manufacturer's Cenvat Credit Query: Is Service Tax on Job Work Eligible for Set-Off Against Commission Income? A textile manufacturer receiving commission from yarn sales seeks to use Cenvat credit for service tax paid on job work against tax on commission income. The manufacturer produces taxable and exempt goods and pays service tax on job work. The query is whether this credit set-off is legally permissible, given no direct link between job work tax and commission income. One response suggests potential for tax planning but warns of future risks if credit is wrongly claimed. Another response clarifies that service tax on job work unrelated to commission does not qualify as input service, thus ineligible for credit.