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to communicate this in writing to the Authorities quoting the said Rule and any mechanism once  opted cannot not be withdrawn in between  the the Financial Year.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

Cenvat credit eligibility for mixed taxable and exempt services: segregation, proportionate reversal, or payment option apply. Cenvat credit for businesses supplying both taxable and exempted services is governed by Rule 6, which allows (i) segregation of accounts to claim credit only for taxable-service inputs, (ii) monthly payment of a fixed percentage of the value of exempted services, or (iii) monthly proportionate reversal under the prescribed formula; the chosen mechanism must be communicated in writing to authorities and remains binding for the financial year.