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?

[tushar garg]

To begin with he will not be eligible for CENVAT as he is availing the benefit Nofn.1/2006-ST,. 

Now to clear your doubt to some extent let me give you one example :

Mr. A is rendering architect service worth Rs. 1,00,000 and construction services being classified under commercial construction worth Rs. 2,00,000 on which he deposited its tax liability after claiming abatement of 67% under Nofn.1/2006-ST,)

In order to provide these services, he availed the Rs. 600,000 worth of input services on which he paid 60,000 as service tax 

Now Mr. A is providing taxable as well as exempted services, it can take CENVAT credit according to rule 6(3)

Taxable Services

Architect Services : 1,00,000

Input Service Tax

input services(600000*10%) : 60,000

Total Turnover(taxable & exempted)

Architect Services + Commercial construction : 1,00,000 + 2,00,000

CENVAT Credit = input service tax * taxable services / total turnover

                              =60,000*1,00,000/3,00,000

                               = 20,000

Exempted services means.................whose part of value is exempted on the condition that no credit shall be taken i.e. services in respect of which benefit of not. 1/2006 is taken. Thus whole amount of Rs. 2,00,000 will be considered  as exempted and not 67%  of 2,00,000

[ROHAN THAKKAR]

Fine Sir.. Thanks a Lot.

 

With Respect and Regards,

 

Rohan Thakkar

[rajkumar shukla]

kindly check up with Budget Bulletin 2012 issued by cbec. In page 49 para1.14. it has been reported that in case of exempted services(that are partially taxed with no facility of cenvat credit) this amount shall be 5% of the exempted value of the service.Thus if the exemption on a certain service is 60%,the amount required to be paid shall be 3%(60*5%) of the full value of the service.

 Kindly check up again. regards r k shukla

[rajkumar shukla]

it is budget bulletin 2011 and not 2012.

AI Summary

Cenvat credit apportionment: abatement under notification limits credit; exempted portion treated non creditable, pay specified percentage. Where an assesse does not maintain separate accounts, Rule 6(3) Cenvat requires apportionment of input service credit by reference to taxable turnover versus total turnover, or payment of the prescribed amount; services enjoying abatement under Notification No.1/2006 ST are to be treated as exempted for the no credit condition so that the abated portion is non creditable, and apportionment must treat the entire value of services covered by the notification as exempted rather than only the abated percentage, with departmental guidance indicating the prescribed payment is a percentage of the exempted value.