We are a firm engaged in renting out various properties for commercial and residential use. Since June 2007, we have been charging service tax on rent received from tenants under the category of ?renting of immovable property service?. We had rented out certain premises for the period January 2006 to December 2006. However, we have received the rental payment only in May 2008. Are we required to pay service tax on this rental receipt?

The liability to pay service tax depends on whether the service is covered under the service tax net at the time of its rendering or on receipt of consideration for the same, whichever is earlier. In your case, the property was rented out for the period January-December 2006, whereas the taxable service category of ?renting of immovable property service? was introduced only with effect from June 1, 2007. Thus, service tax was not chargeable at the time of performance of the service. Therefore, even though the consideration for the same has been received at a time when letting out of properties has been classified as a taxable service, service tax would not be chargeable.

We are a company engaged in the sale of kitchenware and other household items. We maintain a stock of goods at a warehouse in Delhi and retail sales are effected from the same premises. We are now evaluating the possibility of setting up an outlet in Haryana. For this purpose, the goods will be supplied from the warehouse in Delhi, as and when required. We have been informed that no sales tax would be levied on such stock transfers. Is our understanding correct?

Transfer of goods between two branches or outlets belonging to the same entity and located in different states is exempt from the levy of Central Sales Tax (CST), subject to furnishing of Form ?F?. Form ?F? is a statutory declaration that is required to be furnished by the recipient branch to the transferring branch, in order to avail exemption from CST. However, it has been established that exemption from CST cannot be claimed in case the goods are transferred to fulfill a pre-existing order at the recipient branch. Accordingly, CST would not be levied on the transfer of goods from your warehouse to the Haryana branch, subject to furnishing of Form ?F? by the Haryana branch and compliance with the above judicially established principle.

We are engaged in the manufacture of paper products and pens. We avail credit in respect of excise duty paid on raw materials used in the manufacture of our products. On March 1, 2008, paper products were exempted from the levy of excise duty. Certain quantities of raw materials to be used in the manufacture of paper products were still in stock as on this date. Are we allowed to utilise the Cenvat credit available in respect of these raw materials, for paying duty on sale of other excisable products manufactured by us?

The Cenvat Credit Rules, 2004 provide that in case any inputs are held in stock on the date when the final products (in which the said raw materials are to be incorporated) are exempted from excise duty, the credit availed in respect of the duty paid on such inputs is required to be reversed. In case, the amount of credit required to be reversed is more than the total credit available, the balance amount that would remain after reversal would lapse. In your case, you should reverse the amount of credit availed to the extent attributable to inputs used in the manufacture of paper products. If any amount remains after reversal, the same would lapse. In other words, you are not eligible to utilise any credit pertaining to duty-paid inputs in stock that are intended for use in manufacture of exempted goods.

We are a company engaged in manufacture of metal products. In February 2008, we participated in a trade exhibition, where a number of samples were provided free-of-cost to prospective customers. We also sold our products at the exhibition and charged excise duty on the same. In this regard, we have been advised by our tax consultant to also pay excise duty on the free samples. We are unable to understand our liability since the samples were not sold. Kindly clarify the requirement to pay duty, if any.

Excise duty is levied on manufacture of goods. Since you have manufactured the products that have been subsequently distributed as samples, excise duty is leviable irrespective of whether the products have been sold or not. A method has been prescribed for the valuation of such free-of-cost supplies, wherein the transaction value in respect of supply of similar goods is adopted as the basis for calculating duty payable on the free supplies. Thus, you may adopt the sale price of similar products sold at the exhibition for the purpose of calculating the amount of duty payable on the supply of free samples.

?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