Levy on power back-up services

Updated: Feb 28 2014, 07:20am hrs
We are a developer of small residential complexes. Typically, we apply for a single electricity meter for the entire building. We also provide 100% power back up to ensure continuous supply of electricity to residents. For such facility, we recover a fixed amount from every flat owner. Would we be liable to deposit service tax for such charges under the Negative List regime

From the information provided by you and on the preliminary analysis of your activity, it appears to us that you are providing power back-up to all the apartments.

We understand that such charges are an integral part of the agreement entered into with the flat owners / residents. In this case, one may adopt a position that since the power back-up services are provided along with other maintenance services such charges may attract service tax.

Alternatively, one may also view the transaction to be separate for supply of power back-up to the residents. In such a case, one may contend that such services may be opted for by the residents and are charged for separately. Additionally, electricity being in the nature of goods, supply of electricity would not amount to provision of services but sale of goods/ trading. Therefore, charges for providing such power back-up would not attract service tax but VAT. However, the applicability of taxes would depend on the agreements executed and the position is litigative.

Duty drawback on

non-used products

We are a wholly owned subsidiary of an overseas entity and are in the process of winding up our business in India. We have some imported goods lying in our inventory which we would like to export to our parent entity. We have been advised that the duty paid at the time of import cannot be claimed as refund. Is that correct Is there any mechanism to claim the Customs duty paid

Under the Custom Act, 1962, assesses exporting goods which have not been used may claim duty drawback of the duties paid at the time of re-export of such goods. In case the imported goods have not been used after import, the assessee is eligible to claim 98% of the Customs duty paid at the time of import as drawback. The drawback is available only if the goods are re-exported within two years from the date of import.

It is important to note that in such cases, the assessee is required to establish that the goods that have been imported are the very same goods that are now being re-exported out of India. It is not necessary that the goods are exported to the entity from which goods were initially imported.

The Customs authorities have prescribed Rules laying down the methodology, conditions and documentation required for claiming drawback. It is important to note that in case the goods are used by the importer prior to re-exporting, the percentage of duty drawback available is reduced. Depending upon the period for which goods are in India, the percentage of drawback is prescribed in case the goods are used after importation.

Distribution of Cenvat credit for common services

We are a service provider having service tax registrations at three premises. One premise is registered as an input service distributor and here we receive some services which have been used for all the premises. We wish to distribute the Cenvat credit for such common services. Our accountant has informed us that certain changes have been introduced in the process of distribution of Cenvat credit through an Input Service Distributor. Please advise on the same.

Rule 7 of the Cenvat Credit Rules, 2004 (Credit Rules) lays down the procedure for distribution of credit by an Input Service Distributor (ISD). An ISD is an office of the service provider which receives invoices for input services and distributes the same to other premises by issuing an ISD invoice as per the specified procedure.

Rule 7 provides that credit attributable to service used in more than one unit shall be distributed pro rata on the basis of the turnover during the relevant period of the concerned unit to the sum total of the turnover of all the units to which the service relates. Relevant period has been defined to mean the month previous to the month during which such credit is distributed. Hence, the ratio was calculated only by taking into account the turnover of the units to which the service did not relate, based on the turnover of the previous month.

However, recently vide Notification No. 5/2014-CE (NT), dated 25 February, Rule 7 has been amended. From April 1 onwards, the credit of common services would be distributed on the basis of the ratio of turnover of the concerned unit to the total turnover of all the units which have been operational. Further, the term relevant period shall be the financial year, the previous year in which credit is being distributed. Hence, w.e.f. April 1, the credit can be distributed based on the proportionate ratio calculated of the turnover of all the units of the previous financial year. Hence, the procedure for distribution of credit for common services has been simplified.

The replies do not constitute professional advice. Neither EY nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to sme@expressindia.com