Cenvat credit on exempted and non exempted

[Guest]

If a company is providing service for which it uses heavy machinery and pays excise duty on capital items purchased. Also few of the clients are service tax exempt and few of the clients pay service tax, but for both the type of clients same machinery is used. How can we claim the cenvat benefit in this case.

[Surender Gupta]

If an eligible cpaital goods is used for provided exempted and non exempted output services, you are entitled to avail the Cenvat Credit 100%. i.e. in the First year 100% of the 50% and in the subsequent year 100% of balance duty.

[Madhukar N Hiregange]

Yes credit is available even if service is provided to clients who are exempt. Incidentally service tax is only exempt for SEZs and in relation to construction for non profit organisations

AI Summary

Cenvat credit for capital goods used in mixed exempt and taxable services is fully available via phased adjustment. When eligible capital goods are used to provide both exempt and taxable services, the Cenvat Credit on those goods is available in full by a phased adjustment-part of the duty is taken in the first year and the balance in subsequent year(s)-so that the entire duty attributable to the capital goods is eventually credited.