Rule 6(3)(ii) of Cenvat Credit Rules, 2004 read with Notification No 1/2006-ST

[ROHAN THAKKAR]

Dear Sir,

As per Rule 2(e) of Cenvat Credit Rule, 2004, 'exempted services' means taxable services which are exempt from the whole of the service tax leviable thereon, and includes services on which no service tax is leviable under section 66 of the Finance Act and taxable services whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken.

Rule 6(3) of Cenvat Credit Rule, 2004 states that the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow any one of the following options, as applicable to him, namely:-

           (i) pay an amount equal to five per cent. of value of the exempted goods and exempted services; or

            (ii) pay an amount as determined under sub-rule (3A); or

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           Provided further that if any part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs and input services, used for providing such taxable service, shall be taken then the amount specified in clause (i) shall be five per cent. of the value so exempted.”;

Sir, considering the above provisions, there is a tour operator who operates a packaged tour and avails the benefit of Notification No 1/2006-ST. Hypothetical figures in this regard is as under:

Output service	Amount (Rs)
Value of taxable service under tour operator (Packaged Tour)	100000
Abatement (exempt as per Rule 2(e) of CCR ) read with Notification No 1/2006-ST	75000
Taxable Value	25000
Tax @ 10.3%	2575

 

Now, for providing output service, he avails input service on which service tax paid is as under:

 

Details of Input Service
	Value	Rate of input service tax	input service Tax Paid
Suppose, 20% of the amount paid to GSRTC who charges service tax @ 4.12%	20000	4.12%	824
Suppose 40% amount paid to Hotels who charge service tax @ 5.15%	40000	5.15%	2060
Total Input Tax Paid			2884

 

Now sir, if we follow the provision of Rule 6(3)(ii) of Cenvat Credit Rule, 2004 then proportionate credit is admissible if the assessee does not maintain separate books of account for taxable and exempted service.

Exempted service includes taxable services whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken.

Thus, can it be interpretated that the assessee is providing taxable service of Rs 25,000 and exempted service of Rs 75,000.

Pursuant to that, can credit equal to 25% of Rs 2884 be taken (i.e., of Rs 721) and balance amount of Rs 1854/- (Rs 2575-Rs 721) be paid in cash.

Sir, is the above interpretation correct?

AI Summary

Can Tour Operators Claim CENVAT Credit on Input Services Under Rule 6(3)(ii) and Notification No 1/2006-ST? A discussion on the application of Rule 6(3)(ii) of the Cenvat Credit Rules, 2004, in conjunction with Notification No 1/2006-ST, addresses whether a tour operator can claim CENVAT credit on input services when availing exemptions. The query involves a hypothetical scenario where a tour operator provides both taxable and exempted services. The responses clarify that the operator cannot claim CENVAT credit due to availing the exemption under the notification. An example is provided to illustrate the calculation of CENVAT credit for mixed taxable and exempted services, emphasizing the correct interpretation of exempted services. Additionally, a reference to the Budget Bulletin is suggested for further clarification.