Payment of service tax through cenvat

[Asked by Guest]

XYZ Ltd.is an IT Services Company, providing different taxable output services and also exporting certain Services. Till March 31,2008, we have been utilizing 20% Cenvat credit. With effect from April 01,2008, we would like to follow option wherein provider of output services shall pay an amount equal to 8% of the Value of exempted services provided. Query : 1. Whether the unutilized balance amount available in Cenvat Credit as on March31, 2008, can be utilized for payment of service tax for the services to be provided on and after April 01,2008?. 2. Whether export of services is treated as exempted or excluded Services; consequently whether service tax is payable @ 8% on value of services exported?. 3. In case the answer to query 1 is in the affirmative, then what process needs to be followed to avail the unutilized Cenvat Credit and whether any written communication needs to be sent to the Central Excise Department?

With regard Query 1, though there is no provision under CENVAT Rules restricting adjustment of unutilised balance, the present view of the department is such adjustment is not possible if service provider follows Rule 6(3). Best possible suggestion is to retain the opening balance as it is and file a letter in this regard with the Dept with a right to adjust the same in future. With regard to Query 2, export of service is not treated as 'exempted service' and hence VALUE need not be included in 'exempted service' for the purpose of Rule 6(3). In other words, CENVAT on input services utilised in EXPORT services is eligible for full utilisation.

AI Summary

Cenvat credit adjustment: unutilised balances may be non adjustable if Rule 6(3) is followed; exports excluded from exempted services.
The department's view is that where a service provider follows the option under Rule 6(3), adjustment of unutilised Cenvat balances is not permitted; the suggested administrative approach is to retain the opening Cenvat balance and file a letter with the Department reserving the right to adjust it in future. Export of services is not treated as an exempted service for these purposes, and Cenvat on input services used in export services is eligible for full utilisation.