Proportionate calculation

[Asked by Guest]

Dear Friends, Please give your relevant inputs on this query : we are manufacturing of dutiable and exempted products, we are availing a service of labour contractor, which is used in the manufacture of final products. Labour contractor monthly basis charged the bill with service tax for Rs.112360/- (100000 + 12360 service tax). Now question of taking a service tax credit for the above bill. For taking service tax credit, we have apply the proportionate credit method like …i.e; We have collect the production data from our production department, like dutiable production qty 1,00,000 nos and Excisable production qty 50,000 nos, so the total nos of production is 1,50,000 nos (1,00,000+50,000). We are applied proportionate formula like 50,000 (Excisable production qty) * 12360 (Service tax credit) / 1,50,000 (Total production qty) =4120 eligible service tax credit IS IT CORRECT WAY TO TAKE THE SERVICE TAX CREDIT?

[Surender Gupta]

This type of arrangements of availing proportionate cenvat credit has been approved by various judicial authorities. You just have to ensure, that the method used for finding out the proportionate credit is correct and acceptable.

AI Summary

Proportionate service tax credit: production-based apportionment allowed if the methodology and records are correct and verifiable.
Entitlement to proportionate cenvat credit is addressed where services by a labour contractor are used across manufacture of dutiable and exempt products; the taxpayer proposes apportioning service tax credit by production-quantity ratio allocating credit in proportion to excisable units versus total units. Apportionment methods have been accepted by authorities provided the methodology and supporting data are correct, verifiable and consistently applied.