Cenvat credit in trading business

[yash banthia]

We are into a propper retail chain business and paying huge service tax on rent.With the normal trading activity we are also providing business aux. services and other sho in shop rent. Are we eligible to claim service tax credit and if yes what is the general norms followed in this regard.

[CASeetharaman KC]

Cenvat credit can be availed but the following points need to be noted:

 You are providing taxable services and also have trading which is defined as exempted service. Therefore you would have to follow the provisions of Rule 6 of Cenvat Credit Rules, 2004, wherein you can opt from the three alternatives viz  (i) maintain separate account  for trading and taxable services and take credit for the inputs pertaining to the taxable service only (ii) pay 6% of the value of exempted services every month; or (iii) reverse proportionate credit every month as per the formula given in sub-rule 3(A) thereof. Option (i) i e Seggregation of expenses for trading and taxable services is an uphill task and is in some cases impractical and therefore it would be advisable to go for the other two options and the third option may be more advisable. You need to communicate this in writing to the Authorities quoting the said Rule and any mechanism once  opted cannot not be withdrawn in between  the the Financial Year.

[YAGAY andSUN]

Since, trading is exempted service, therefore, CENVAT credit cannot be availed. If exempted services and Taxable services are being provided by you, then, on the event of availment of CENVAT credit, the provisions of Rule 6 of the CENVAT credit Rules will apply as stated above by our learned friend Mr. Seetharaman K C Ji.

AI Summary

Retail chain advised on Cenvat credit eligibility; trading as exempted service affects claims. Rule 6 compliance required. A retail chain business inquired about claiming service tax credit while engaging in both trading and providing business auxiliary services. It was clarified that trading is considered an exempted service, impacting Cenvat credit eligibility. According to Rule 6 of the Cenvat Credit Rules, 2004, the business must choose between maintaining separate accounts for taxable and exempted services, paying 6% of the value of exempted services monthly, or reversing proportionate credit monthly. The third option is recommended, and any chosen method must be communicated to authorities and cannot be changed within the financial year.