credit on paint purchased

[felix ka]

Hai TMI experts,

We are manufacturers of dutiable final products. We want to seek the service from a registered contractor towards the ‘painting of the capital goods and plant area’. The contract mainly consists of two parts:

• Supply of prescribed quantity of paints from a recognized paint company and 
• Labour charges for application of paints in the machinery and plant area.

Separate rate schedules for supply and labour are specifically given in the contract. The contractor gets the invoice towards paint purchase in his name and we are indicated as the ‘consignee’.

The contractors (in their bill to us) are showing the material cost and labour charges separately; but part of the same invoice. The material cost is based on actual usage (Not on the receipt of paint in the factory). In this back ground I have the following queries:

1. Paint used for painting plant & machinery are eligible inputs for CENVAT Credit or not.
2. Whether the invoice indicating us the ‘consignee’ is sufficient for taking credit.
3. To avail the CENVAT Credit on paint, whether we have to pay ST on total value shown in the invoice of the contractor?
4. Can we bifurcate the contract to pay Service Tax only on the labour charges and claim the benefit of notification no: 12/2003-ST (no ST on material part) or ST is to be paid on the combined value of labour & material?
5. If we do not pay ST on the paint, will it affect our CENVAT Credit availability of the excise duty paid on paint purchase?

[P Ovhal]

I think this service or goods is not used as a inputs or input Services. therefore It not be allowed to CENVAT credit

[Mahir S]

Paints, used for repair and maintenance of various equipments and the pipes and machines etc. are eligible for cenvat credit.

[NEERAJ KUMAR, RANCHI]

Hi,

For taking cenvat credit it is necessary that paints should be received in your factory premises and it should be properly accounted in your records. Mention of your name as consignee is good enough for taking cenvat credit provided that goods are actually received in your factory. Benefit of Notification 12/2003-ST can be availed of by you, provided that cost of goods is not included in the bills raised by your service provider.

As far as answer to question no. 5 is concerned it is not understood why you do not pay service tax on paint, in fact you do not need to pay ST on paint rather yo need to pay service tax on painting activity.

 

[Mahir S]

Regarding your query raised at point no. 05 above, it is to clarify that even if No Service Tax is paid for the application/use of paintsin the machinery and paint area, the CENVAT Credit availability of the excise duty paid on paint purchased/received/used in factory/ shall not be affected in any manner.

For more clarity on the subject, also refer to case law - CESTAT NEW DELHI, Citation 2008 (227) ELT (Tri.Delhi) in the case of STEEL AUTHORITY OF INDIA LTD Versus  COMMR. OF C.EX.,RAIPUR in this regard.

 

AI Summary

CENVAT credit on paints: entitlement requires physical receipt and accounting, while service tax applies to the labour element. CENVAT credit on paints used for repair and maintenance of plant and machinery is available where paints are actually received in the factory and properly accounted; a consignee entry on the supplier's invoice is adequate evidence of receipt. Service tax applies to the painting activity (labour); the material part may be excluded from taxable service value under Notification 12/2003 ST if not billed by the service provider. Failure to pay service tax on the paint component does not affect the CENVAT credit of excise duty on paints actually purchased or received.