Credit of service tax paid on loan sanctioning

[Vijay Chitte]

We are manufacturing dutiable and exempted pharmaceutical products. e.i. we have applied for a loan Rs.100 cr. To M/s. XYZ banking company, situated at foreign country for our new factory plantation and we will manufacture dutiable and exempted products in this new factory plantation. Now we have appointed a consultant M/s. ABC banking financial services, situated at Mumbai for sanctioned this loan, M/s. ABC consultant will prepare a necessary documents and structures for sanctioning this loan under the ECB guidelines issued by the Ministry of Finance and the Reserve Bank of India. After sanctioned this loan, he will charge the documentation fees and structuring fees @1% on loan-sanctioned amount plus Service tax @12.24% (Rs. 1 Cr. + 12.24% service tax). Banking and financial service including in specified sixteen service as per Cenvat credit rules 2004 rules 6(5) if these services utilized exclusively for exempted products, credit will not be eligible, But these service used in both (Dutiable and exempted products) then 100% credit will be eligible. May question is: 1) We should take service tax credit or not? 2) Can we take a 100% service tax credit, charge by the ABC banking financial services? Please give me your expert views.

[Surender Gupta]

As per the provisions of Rule 6(5) of Cenvat Credit Rules, 2004 an assessee is eligible for 100% credit if the "banking and financial services" is being used for taxable / Excisable (non exempted) and exempted products manufactured both. Therefore, you should not loose the benefit of the credit credit.

AI Summary

Cenvat credit eligibility: banking and financial consultancy services used for both dutiable and exempted production permit full service tax credit.
Banking and financial consultancy services used exclusively for exempted products are not eligible for service tax credit; where such services are used for both dutiable (taxable) and exempted products, the services qualify as input services and full credit of the service tax may be availed.