Availing of Cenvat credit on service tax paid to various service providers

Written by Kamal Aggarwal | Updated: Aug 23 2008, 04:28am hrs
We have recently started the manufacture of glass bottles at our manufacturing facility in Haryana, and are paying excise duty for that purpose. We have our head office in Delhi. Various taxable services are received at the Delhi office, such as chartered accountants service, management consultants service and cleaning activities among others. However, no taxable services are provided from the office, and it is unable to avail of Cenvat credit on the service tax charged by various service providers. Is there any mechanism by which the credit can be utilised by our company

Under service tax laws, it is possible for the office of a manufacturer of excisable products to distribute input services to the manufacturing unit. For this purpose, the manufacturer is required to obtain service tax registration as an input service distributor' (ISD) in respect of such office premises. Under this mechanism, the office premises registered as an ISD would receive invoices in respect of procurement of taxable services, and would be eligible to issue an invoice, bill or challan for distributing the credit of the service tax paid to the manufacturing facility. The manufacturing facility could then avail of Cenvat credit of service tax paid at the head office and distributed through such a mechanism. Accordingly, in your case, the head office receiving taxable services may be registered as an ISD, which could then transfer credit of the service tax paid to the manufacturing facility in Haryana.

We are a company engaged in the manufacture of footwear at our factory in Ghaziabad from where the goods are usually sold to customers. We have recently opened a warehouse in Delhi, and certain quantity of goods is now transferred from the factory to the warehouse, from where they are finally sold. In this regard, we have been paying excise duty at the factory gate on the value at which the goods are dispatched to the warehouse, but have been informed that such a method of valuation is incorrect for excise duty purposes. Please advise.

Under the central excise laws, excise duty is payable on the price at which goods are sold at the time of clearance from the place of removal. In this regard, in case goods are not sold from the factory premises but are transferred to a depot or warehouse from where they are finally sold, the depot or warehouse would qualify as the place of removal. In such a scenario, excise duty is payable at the time of clearance of goods from the factory itself. In your case, excise duty in respect of the goods transferred to and sold from the warehouse should be paid on the final sale price of such goods, which is prevailing at or about the same time as when the goods are cleared from the factory.

We are a company engaged in the trading of plastic products. We purchase goods from various wholesalers in Delhi on which value added tax (VAT) is paid. We had participated in a trade fair last month where free samples of our products were distributed to visitors and potential customers. Are we entitled to avail of input tax credit of the VAT paid on the purchase of such goods

Under the VAT laws, input tax credit of the VAT paid on purchases can be adjusted only against the output VAT or central sales tax (CST) liability arising on the sale of such goods. In case certain goods are transferred otherwise than by way of sale, the input tax credit in respect of such goods cannot be availed of, as there would be no corresponding output VAT/ CST liability in the absence of a sale transaction. Accordingly, in your case, input tax credit cannot be availed of in respect of the VAT paid on goods that were subsequently distributed as free samples.

We are a firm of consultants advising Indian and international companies on infrastructure projects. We are currently paying service tax under the taxable service category of management or business consultants service. Recently, we have imported certain computers for use in provision of such services, on payment of applicable customs duties. Kindly advise on the availability of Cenvat credit in respect of such customs duties.

Customs duty applicable on import of goods into India consists of four components, namely, basic customs duty (BCD), additional customs duty (ACD) in lieu of excise duty levied on similar products manufactured in India, education cesses of customs and special additional duty (SAD) in lieu of value added tax (VAT) levied on similar products sold in India. Cenvat credit of BCD and education cesses of customs duty is not available under any circumstances. In your case, Cenvat credit of only the ACD (inclusive of education cess thereon) paid on imports would be available, subject to fulfillment of the conditions prescribed under the Cenvat credit rules. Such Cenvat credit could be utilised to pay the output service-tax liability.

Respondents are senior professionals at Ernst & Young. The replies do not constitute professional advice, but are based on interpretation of facts available in readers queries to the professionals. Neither Ernst & Young nor this publication is liable for any action taken on the basis of this information.