Input service as per Cenvat Credit Rules, 2004, is an expansive definition

Written by fe Bureaus | Updated: Oct 31 2009, 04:26am hrs
We are a dealer based in Haryana engaged in trading of various household products. As the electricity supply in our area of operations is not very good, we are largely dependent on generators and accordingly, purchase diesel in huge quantity. As the diesel purchased is utilised in the course of operations, we assume that we can avail credit of the same. Please clarify.

Schedule E of the Haryana Value Added Tax, 2003 pertains to list of goods on which input tax credit cannot be availed. Petroleum products when used as fuel are covered in the aforesaid schedule. Therefore, input tax credit on diesel, purchased to be used as fuel, cannot be availed.

We are a multinational company dealing in accessories and have recently set up a subsidiary in India. In order to display our products and penetrate the Indian market we wish to participate in certain exhibitions and for that purpose have entered into a cost sharing agreement with another Indian company to share exhibition related costs. For administrative purposes, we will initially pay for all the expenses pertaining to the exhibition and later on the other company will reimburse us the share of the expenses attributable to them. Please clarify whether such an arrangement will attract Service tax liability.

In order to levy Service tax, there should be an element of service and also a service provider-service recipient relationship. In the present case, the arrangement between the two companies seems only to be a cost sharing agreement, wherein one company will initially bear the expenses and the other will reimburse it later. There is no provision of service by one company to the other and therefore there is no service providerservice receiver relationship. Thus, such an arrangement would not be leviable to Service tax.

We are a company dealing in chemicals with the manufacturing facility at the plant situated in a countryside area. We have canteen facility at the factory premises and have entered into an agreement with a contactor to provide the catering services. The contractor charges Service tax at the time of billing for the services provided. In this context, please advice whether credit of Service tax paid on cafeteria services is available.

The definition of input service as per Cenvat Credit Rules, 2004, is an expansive definition and includes any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products. Basis the definition, it can be inferred that cafeteria services received at the factory premises are covered within the purview of the definition of input services for manufacturing of the final products. Moreover, there are judicial precedents wherein it has been held that Cenvat credit of Service tax paid on the canteen services received in the factory premises should be allowed. Accordingly, you may avail credit for such services.

We are a construction company operating in Delhi and have entered into a works contract with a government body for construction of flyovers. During the course of execution of work contract, the government body has supplied a specific type of steel in small quantity to be used for construction. However, there is no mention of it in the contract. As the steel has been supplied by the government body, please clarify whether VAT is to be paid on the whole value of the work contract or can we take deduction of steel supplied.

As per the Delhi VAT Act, the deduction of the value of goods supplied free of cost by the contractee for use in the execution of the works contract can be availed only if, such value is not indicated separately in the contract and is not shown as a deduction from the total amount payable by the contractee. However, in case the value is indicated separately in contract and is claimed as a deduction in the invoice issued to the contractee, VAT would be payable on such amount also.

In your case, in the event, the value of goods supplied by the contractee appears as a deduction from the total amount payable by the contractee, VAT would be payable on the entire amount of the work contractee inclusion such amount of supply, otherwise not.

Respondents are senior professionals at Ernst & Young. The replies do not constitute professional advice. Neither EY nor FE are liable for any action taken on the basis of these replies