Cenvat credit is on duty ?paid?, not ?payable? by the manufacturer

•We are a company engaged in manufacturing. We have taken cenvat credit on certain goods that are used in manufacturing activities. At the year end, the supplier gave a discount of 2% on the goods purchased during the year. We want to know whether we need to reverse the cenvat credit taken by us on such goods.

Rule 3 of the Cenvat Credit Rules 2004 allows the credit of duty ?paid? on the inputs by the manufacturer and not the duty ?payable? by the manufacturer. It has been clarified by the tax authorities that the total duty paid by the manufacturer would be available as credit even if at a later date, the price of the product is reduced by discount. This is because the discount is on the price of the product and not on the duty paid. However, if the duty paid is also proportionally reduced with the price of the product, then you would need to reverse credit equivalent to the duty that has been reduced. You should confirm from your supplier whether he has claimed refund of the duty on account of reduction in the price of the product.

•We are planning to purchase a flat in Delhi. The complex is still under construction and we would receive possession after one year. We wish to know whether the builder who is constructing the apartment should charge us service tax on the installments paid during the construction period.

The service tax authorities recently clarified that the initial agreement between the developer and the purchaser of a flat, prior to the execution of sale deed, is in the nature of ?agreement to sell?. Once the construction is complete and the full payment for the property is made, the ownership of the property get transferred to the purchaser. Therefore, during the period of the construction, the property in the apartment remains with the developer. During this period, any service provided by developer in connection with the construction of apartment is in the nature of a ?self-service? (which the developer provides to himself) and would, therefore, not be liable to service tax.

•We are setting up a company for providing security services. We understand that we need a service tax registration for our services. Is it possible to obtain the service tax registration without a PAN card?

You are correct that ?security services? would be liable to service tax and accordingly, you need to obtain a service tax registration number. However, the service tax registration number is based on the PAN number. Therefore, you would first need to obtain a PAN number before you can apply for a service tax registration number.

•We have a service tax registration for our office in Delhi and have recently shifted our registered office from Delhi to Gurgaon. Do we need to inform the service tax authorities of the change in address?

As per the service tax law, you are required to inform your jurisdictional Assistant or Deputy Commissioner of Service Tax of the change in the office within thirty days of such change. However, since you are shifting your office from one division to another within the Service Tax Commissionerate in Delhi, practically, the service tax authorities in Delhi require that you apply for a new service tax registration in Gurgaon and cancel the service tax registration in Delhi.

•We are a project office of a foreign company and are based in Delhi. We have recently received some services from our head office on which we need to pay service tax. We want to know whether we can pay the service tax from our cenvat credit account?

The service which you receive from your head office is not an output service provided by you. It is, in fact, a service received by you on which you are liable to pay service tax under the reverse charge mechanism, that is, as a service recipient. The clarifications issued in relation to the Cenvat Credit Rules also make it clear that for a service to qualify as an output service, the said service should be provided by the person who is liable to pay service tax. Since these services are not provided by you but by your head office, you cannot treat such services as output services.

Therefore, you cannot utilise your cenvat credit to discharge your service tax liability on services received from your head office. However, once you have deposited the service tax on such services, you can claim cenvat credit of the service tax deposited provided that such service qualifies as an ?input service?.

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