Input service definition tightened, reducing availability of CENVAT credit and prompting fresh litigation risk for taxpayers
The 2011 amendments narrow the input service definition to services used by a taxable service provider in providing output services or by a manufacturer directly or indirectly in or in relation to manufacture and clearance up to the place of removal; they remove "activities related to business" and services used in setting up factories, and expressly exclude specified services (including certain construction, motor vehicle related services, and employee personal-use services). Recipients must now demonstrate nexus for each service to claim credit, and Rule 4(7) includes a proviso requiring proportionate reversal where payment towards an input service is returned. (AI Summary)