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

Pharma company eligible for full service tax credit on loan facilitation fees under Rule 6(5) of Cenvat Credit Rules. A manufacturing company producing both dutiable and exempted pharmaceutical products sought a loan from a foreign bank for a new factory. They hired a consultancy firm to facilitate the loan process, which included documentation and structuring fees subject to service tax. The company inquired about eligibility for service tax credit on these fees. The response clarified that under Rule 6(5) of the Cenvat Credit Rules, 2004, the company is eligible for 100% service tax credit since the banking and financial services are used for both taxable and exempted products.