Input Credit of Service tax with effect from 1st July 2012

[A Wilson]

Dear Experts,

We are liable to pay service tax under reverse charge for

Legal Services by Advocates,

Motor  Car Hire Charges

Manpower Supply services

Freight Payments

Service portion in a Work Contract Service

Import of services - Professional - Financial Advice Services

After paying the service tax under Reverse Charge. Shall we eligible to take Input Credit of the above service tax paid in our Output Services Like Commission Agent for goods supply, Recovery of Freight, Recovery of Addl Storage Charges

Pls give your Inputs on this.,

[Narender Singh Negi]

As per defination under Rule Sec 2(l) (ii)  of CENVAT credit Rules, 2004, credit of input services can be taken on all direct and indiect expenses relating to manufactureing legal fees, inward transportation, security charges, labour expenses and outward transportaion upto the palce of removal.

[YAGAY andSUN]

You may avail the CENAT credit as per the provisions of CENVAT credit Rules, 2004 as amended time to time.  In the case of reverse charge mechanism, the challan would be the appropriate document to avail the CENVAT credit.

[JAMES PG]

Cenvat credit eligibility is subject to the exclusion clauses in CCR. For example, motor car hire charges, Works contract related to Construction services, laying foundation  or making structures of capital goods etc are not eligible for credit availment

[Vijay kumar]

In terms of Rule 2(l) of CCR, 2004 only services "used" for providing output service are eligible for credit. This concept read with Board's Letter F.No. 354/148/2009-TRU Dated 16-7-2009 (issued in the context of admissibilityof credit of tax paid u/s 66A under reverse charge),  it should be understood that these services should be used for or should have nexus with the output services mentioned by you. Secondly, you have to take into consideration the exclusion categories like rent-a-cab, construction services services etc. Accordingly, from the info given, it seems that Motor car hire charges and any construction related services under works contract are not eligible at the very outset and eligiblity of other services depend on their nexus with the output service.

AI Summary

CENVAT credit eligibility: reverse-charge service tax is claimable only if the input service is used for the output service. CENVAT credit for service tax paid under reverse charge is permitted only where the input service is used in, or has a direct nexus with, the claimant's output services; challan is the appropriate document for reverse-charge payments. Rule 2(l) CCR 2004 governs admissibility, and specified exclusions-such as motor car hire/rent-a-cab and construction or works-contract related services-bar credit regardless of payment mechanism. Other services require assessment of their nexus with output services before credit may be availed.