Service Tax on reverse charge method - reg.

[vinay wakde]

We are hiring Cars/Sumos for verious company`s work. All the service providers were not crossed the limit of 10 lacs in previous financial year therefore they are not registered under Service Tax. From 01.07.2012 onwords, if the service receipient is company /business entity then they have to pay Service Tax to the extent of 4.95% ( 40% 0f total Hire charges paid) under reverse charge method. Kindly clarify whether we shall take input service credit on the strength of Bank challan?

Regards,

VINAY

[YAGAY andSUN]

Yes, you may.  As Bank Challan is now authentic document to avail the CENVAT credit on input service.  Further, you would have to prove the nexus between input services with manufacturing activities or output services.

[JAMES PG]

As per Rule 2 (l) ii B of  Cenvat Credit Rule, services provided by way of renting of motor vehicles is excluded from the definition of input service. Hence taking Cenvat credit of ST paid under reverse charge for taxi hire charges appears to be inadmissible

[Gajanand Verma]

Yes, Company can take the benefit of CENVAT of the Service tax paid to the extent of 4.95%

[Gajanand Verma]

Yes, Company can take the benefit of CENVAT of the Service tax paid to the extent of 4.95%

[JAMES PG]

Where is the relevant provision in Cenvat Credit Rules which states that hiring of motor vehicles is eligible input service ?

[S G]

No , Credit of Cab hiring is not avilable. As per Defintion of Input service , credit of  cab hiring is excluded.

AI Summary

Reverse charge on vehicle hire raises dispute over CENVAT credit eligibility despite bank challan proof. Recipients (companies/business entities) must pay service tax on vehicle hire under the reverse charge mechanism from 1 July 2012; the question is whether CENVAT credit of tax so paid can be claimed on the basis of bank challan. Forum replies conflict: some accept bank challan and require nexus with output activities for CENVAT, while others rely on Rule 2(l)iiB excluding renting of motor vehicles from input service, denying credit for taxi/cab hiring.