credit of service tax

[rutvij vyas]

my client is purchasing coal from coal company then after to wash coal it has been sent to washery. now washery will wash the coal which is perfact and will not wash rejected coal. now my question is whether my client will get credit of service tax on rejected coal ? let me clarify this by example that if coal company provides 100 ton coal to washery then washery will first wash 100 ton then after finding out 20 ton is rejected coal so whether it has to issue bill of 80 ton and charged service tax accordingly or should raise invoice stating 100 ton wash coal less 20 ton rejected and thenafter bill of 80 ton ? please guide me on urgent basis

[CA Rachit Agarwal]

Washing activity of Coal is done for 100 tonnes, and it is after washing 20 tonnes are rejected and clean coal gets segregated. Hence the washery should raise bill for 100 tonnes and avail the cenvat credit for entire 100 tonnes. Now it is upto the Coal Company that whether he lifts the clean coal with rejects or only clean coal.

Above all the percentage of rejects with clean coal is hypothetical and not exact, hence in our opinion it should raise for 100 tonnes, though he can mention about the clean coal quantity and reject quantity in the bills.

Refer Rule 6 of Cenvat Credit Rules, 2004

[Brijesh Verma]

To an extent, I tend to Agree with Rachit Ji's view. However, the basic question that still tingles is whether the washery is taking washing charges in respect of the rejected (20 ton in your example). If yes, then tax will be levied on the full amount by the washery and consequently Cenvat will be available in respect of full quantity.

AI Summary

Cenvat credit entitlement for washery services extends to full quantity billed when washing covers rejected coal as well.
The legal issue is whether cenvat credit on service tax applies when a washery washes an entire supplied consignment but a portion is later rejected. If the washery performs and charges for the washing on the full quantity, it may invoice and claim cenvat credit for the entire quantity; invoicing may separately record clean and rejected quantities for clarity, but credit follows the quantity on which the service was performed and charged under the cenvat rules.