We manufacture electrical fittings and have three manufacturing units and a corporate office. For the purpose of distribution of cenvat credit to the factories we have registered the corporate office as an input service distributor. Credit to the factories is distributed in the ratio of 40:30:30 on the basis of the sales turnover. We have recently received a show cause notice stating that the methodology is incorrect and irregular and thereby seeking to deny the complete credit distributed to the manufacturing units. What should we do?
As per the Cenvat Credit Rules, 2004, an office can be registered as an input service distributor for distribution of cenvat credit to the factories for the purpose of utilisation. However, neither the Cenvat Credit Rules nor the service tax regulations prescribe any mechanism for the distribution of credit.In the absence of any methodology for distribution of credit, an input service distributor can distribute cenvat credit in any manner so as to maximise the cenvat credit availment and utilisation. For instance, the cenvat credit can be distributed to one factory only instead of distributing to all the factories. In the present case, we understand that you are distributing the credit on the basis of the sales turnover of the factories. This is a reasonable basis for the distribution of the credit and, in the absence of any specific regulation regarding the methodology for credit distribution, should be allowed.
We manufacture and sell various industrial products. Currently we are selling goods from Delhi as an ex-factory sale. However, in some cases, we arrange for the transportation of goods on behalf of the buyer. The transportation cost is then charged by us to the buyer. We wanted to understand whether VAT is applicable on the transportation charges also.
The definition of ?sale price? in the Delhi VAT legislation includes any sum charged for anything done by seller at the time of or before delivery of goods. However, the cost of freight or delivery or the cost of installation, when separately charged, does not form part of the sale price. Similar provisions are also provided in the Central Sales Tax Act, 1956.In the present case, since you are selling the goods as ex-factory sale, the delivery of the goods is completed when the goods are sold at the factory gates. The transportation is an activity which takes place post the delivery of the goods.
Thus, if the delivery of the goods takes place before the transportation and thereafter, the transportation cost is incurred by the seller at the request of the buyer as per an agreement between the parties and such transportation is shown separately, the transportation costs would not form part of the ?sale price? for the levy of VAT/ CST.
We as a firm providing marketing support services in India to companies located outside India. In the past we have raised invoices in rupees and our collections were also in rupees. However, the amounts transferred by the overseas corporations were in equivalent foreign currency. The same was converted to rupees in India by our bank and credited to our account. Would the receipt of payment in rupees in our bank account mean that our services do not qualify as exports?
You are correct that one of the conditions for a service to qualify as an ?export? is that the payment for the service should be received in convertible foreign exchange.In the present case, we understand that your bank in India receives payment in convertible foreign exchange and credits the equivalent amount of rupees into your account. Therefore, in order to establish this, the Foreign Inward Remittance Certificate issued to you by your bank should indicate the amount received in foreign currency. Alternatively, you should obtain a specific certificate/ declaration from your bank clearly indicating that the bank received payment in convertible foreign exchange (mentioning the currency and the amount) in India and subsequently, credited your account with the equivalent amount in rupees. This would assist you in establishing before the authorities that you have received payment for the service in convertible foreign exchange even though you may have raised the invoice in rupees.
The replies do not constitute professional advice. Neither E&Y nor FE is liable for any action taken on the basis of these replies
We are a unit engaged in the manufacture of motor vehicle parts. We ensure the delivery of manufactured goods till the buyer?s factory. For this purpose, we avail the services of freight agencies on which service tax is paid by us. We wish to understand if we can avail Cenvat Credit for the Service Tax paid on outward freight charge since our place of removal is not our factory gate but buyer?s destination.
The definition of ?input service? provides that Cenvat credit shall be available for services used in relation to ?outward transportation upto the place of removal.?
Typically, ?place of removal? is understood to include factory or any other place or premises of production or manufacture of the excisable goods; a warehouse or any other place or premises wherein the excisable goods have been permitted to be stored without payment of duty; or a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory.
However, Circular No. 97/8/2007 dated 23 August 2007 provides for situations where the manufacturer / consignor may claim that the sale has taken place at the destination point as per the terms of the sale contract / agreement. This would require fulfillment of specific conditions stipulated in the circular. Accordingly, if you are able to substantiate that the conditions of the Circular are fulfilled with the supporting documents and the contractual agreement, you can claim the Cenvat credit for payment made to freight agencies for outward transportation of goods.
The replies do not constitute professional advice. Neither E&Y nor FE is liable for any action taken on the basis of these replies