Input credit of service tax paid on Telephone, Courier, freight, Construction

[Guest]

My Client an exporter is paying service tax on commission to overseas agent being a Service Receiver, and also paying service tax on rent of the factory, besides service tax on inputs like Tel. Courier, freight, Construction in factory. Can he adjust the amount(how much percentage) of service tax paid in the amount of service tax due on services received from abroad.

[Guest]

Service tax paid on commission to overseas agent being a service receiver is also in the nature of ‘input services’ like service tax paid on Telephone, courier, freight etc. Only as per Sec.66A of Finance Act, the liability is cast upon the ‘service recipient’ to comply with the provisions and discharge the liability where the service is received from foreign countries. As per CENVAT Credit Rules, any tax paid on input services can only be adjusted against the taxable output services/ goods manufactured. Thus, service tax paid on inputs like Telephone, courier etc cannot be adjusted against the liability of service tax paid on commission made to overseas agent as it also an input service. However, in terms of Rule 5 of CENVAT Credit Rules, 2004, CENVAT Credit in respect of service tax paid on overseas agent can either be adjusted against any excise duty on final products or service tax liability on output service rendered. Where such adjustment is not possible, the amount is also eligible for refund subject to the conditions and limitations as prescribed. In other words, service tax liability on foreign agent should first be paid without any adjustment and then credit/rebate or refund of the same can be availed subject to the provisions.

[Surender Gupta]

No cenvat credit is allowed for the purpose of payment of service tax on import of services. Therefore, you can not adjust any amount paid on other input services to pay service tax on import of services.

AI Summary

Import of services: service tax on foreign agents must be paid first; CENVAT credit or refund may follow. Service tax on commission to an overseas agent is an input service; CENVAT credit for taxes paid on input services can only be used against output service tax or excise duty on final products. Therefore, tax paid on domestic inputs cannot be adjusted to meet the service tax liability on imported services, which must be paid by the service recipient; where such credit cannot be applied against output liabilities, refund or rebate may be claimed subject to conditions.