We manufacture CFL lamps and bulbs. We receive intellectual property services from our group company located outside India since June 2007. Prior to May 10, 2008, we had been discharging our service tax liability when the payment for these services made by us. For services received in March-April 2008, we booked expenses on account of our group company and made the payment for such services in December 2008. Service tax was deposited in the subsequent month. The department has demanded interest from May 10, 2008 (i.e. the date on which the law relating to associated enterprises was inserted in Service Tax Rules, 1994) till the date of payment of service tax. Please advise whether such interest is applicable or not.
Service tax is generally required to be deposited on actual receipt of consideration for services provided or to be provided. Prior to the amendment in the service tax law, it was clear that the service tax had to be paid only when payment for services was made and not on making the entry in the book of accounts. In your case we understand that the department is demanding interest on the amount accrued as on May 10 , 2008 for services which were received during March and April 2008 and payment made in December 2008. It is a well-settled principle that the law as applicable at the time of rendering the service has to be applied. Therefore, if subsequently the law was amended, and book entries by a service provider were deemed as paid for services, it should have no bearing on the services which have already been received.
Further it has been held that a substantive change in law cannot have retrospective operation. In the instant case, the legislature has sought to widen the circumstances under which tax needs to be deposited, which is clearly a substantive change in law. In our view, the department is not justified in demanding interest on payment made towards taxable services in December 2008 for services received from March to April 2008.
We have a captive power plant for generation of electricity to be used in the manufacturing activities. The surplus power generated is supplied to the State Electricity Board. Can we avail full Cenvat credit of the inputs used in generation of electricity through the captive power plant?
Cenvat credit of excise duty paid on inputs is available to a manufacturer provided that such inputs are used in the manufacturing activities. It may be noted that the judicial pronouncements seem to suggest that Cenvat credit may not available in respect of inputs used in generation of electricity which is used for purposes other than in or in relation to manufacture of excisable goods. The Court has held that where electricity generated in the power plant would qualify as inputs only if they are used in or in to relation to the manufacture of the final product. However, where the electricity so generated is used in such other purposes apart from manufacture of final goods, Cenvat credit would not be admissible. Thus it appears that full Cenvat credit may not be available for such inputs.
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