Input service of ST paid on Company Vehicle

[Srivatsan Krishnamachari]

Dear Gentlemen,

 

Kindly clarify the folowing queryof mine.

A Director/ Managing Director is provided with Company -Car.the Car is inthename of the Company the car is used by the Director or managing Director concerned for uses mainly Official and to cerain exent personal uses. Whether the Company can take credit of the Service Tax paid on the Service charges paid to the Car Service Staions.

Thanks & With Regards,

K.Srivatsan

[YAGAY andSUN]

Yes, you can avail the CENVAT credit. But you would have prove the its nexus with manufacturing activities.

[GURUSWAMY KRISHNAMURTHY]

Sir

 Cenvat of serivice tax cannot be availed due to the fact that there is no nexus which can be proved with the process of manufacture and especially after the amendment made to the definition of Input Service with effect from 1-4-2011 Kindly which reads

"Input service" means any service,-

(i) ......

(ii) ..........................................................but excludes serivices,-

A......

B.........................in so far as they relate to motor vehicles .except when used for the provision of taxable services for wihch the credit on motor vehicle is available as capital goods

Hence in my view the credit cannot be availed and you may have the demand raised at the time of central excise audit

 

 

[dipsang vadhel]

1.Rule 2(l) of Cenvat Credit Rules (as effective from 1-4-2011), defining the term “input service”  excludes specified in sub-clauses (d), (o), (zo) and (zzzzj) of clause (105) of section 65 of the Finance Act, in so far as they relate to a motor vehicle except when used for the provision of taxable services for which the credit on motor vehicle is available as capital goods from the definition of "inpu service".

2.The service charge payable to car service station is covered by ZO of clause (105) of the Finance Act.  The said credit is admissible to the company only if the credit on motor vehicle is available as capital goods .

3.The credit on motor vehicles would be allowed as capital goods only to the Service provider of courier,tour operator,rent-a-cab scheme operator, Cargo handling agency, outdoor caterer, pandal and shamiana operator and goods transport agency. (Rule 2(a) (B) of CENVAT credit rules)

4.Motor vehicle will not be considered as "capital goods" for manufactures or other service provider.

5.Therefore, admissibility of CENVAT credit in this case depends upon business of the company.

6.If the company is in any business mentioned in para3, CENVAT is admissible.

7. If company is in any other business, you can take CENVAT credit only if you can prove that such service was directly or indirectly in relation to manufacture of final products or providing taxable ouptut service. but even in that case particulary when there is specific exclusion clause, it is highly debatable . The litigation is highly expected if the company takes CENVAT credit. Thus, it will be business call to take or forgo credit based on amount involved.

AI Summary

Cenvat credit on motor vehicle services is restricted and generally disallowed unless vehicle use falls within specified taxable businesses. CENVAT credit for service charges relating to a company-owned motor vehicle is excluded under the amended definition of input service except where the vehicle is used to provide taxable services for which the motor vehicle is allowable as capital goods; only specified service providers qualify automatically, and other companies must prove a direct or indirect nexus to manufacture or taxable output services, a position that is legally uncertain and audit-prone.