Friday, September 25, 2015

Service Tax CENVAT Credit Scheme FAQ

What is CENVAT Credit Scheme with reference to Service Tax assessees?
The CENVAT Credit Rules, 2004, introduced with effect from 10.9.2004, provides for availment of the credit of the Service Tax paid on the input services/Central Excise duties paid on inputs/capital goods/Additional Customs duty leviable under section 3 of the Customs Tariff Act, equivalent to the duties of excise. Such credit amount can be utilized towards payment of Service Tax by an assessee on their output services. (Refer to Rule 3 of CENVAT Credit Rules, 2004). Such credit availed by a manufacturer can also be utilized for discharging their liability towards Service Tax and / or Central Excise duties.

What are the duties / taxes that can be availed as credit?
  • Duties paid on the inputs and capital goods, and the Service Tax paid on the input services can be taken as credit. Education
  • Cess paid on the Excise duty and Service Tax can also be taken as credit. However, the credit of such Education Cess availed can be utilized only for payment of Education Cess relating to output service.
  • The interest and penalty amounts cannot be taken as credit.
What is meant by input, input service, capital goods for a service provider?
These terms have been defined in the CENVAT Credit Rules, 2004. 

Is it compulsory that the inputs / capital goods are to be purchased only from the manufacturers for the purpose of availment of credit?
No. The inputs/capital goods can be procured from the First stage and Second stage dealers also. Those dealers should have registered themselves with the Central Excise Department. The invoices issued by them should contain proper details about the payment of duty on those goods. 


What are the documents prescribed for availment of the CENVAT Credit?
The documents on which CENVAT credit can be availed are as follows:-
  1. Invoice issued by the manufacturers and his depot/ consignment agents
  2. Invoice issued by the Importer and his depot/consignment agents
  3. First stage and Second stage dealer registered with the Central Excise Department
  4. Bill of Entry
  5. Invoice/Bill/Challan issued by the provider of input Services
  6. Invoice/Bill/Challan issued by the Input Service distributor.
  7. Certificate issued by the Appraiser of Customs in respect of the goods Imported through Foreign Post Office.
  8. A Challan evidencing payment of service tax by a person liable to pay service tax in the service category of auxiliary insurance, goods transport, recipient of service from a foreign country and sponsorship.
Whether it is necessary to avail credit only after receipt of the bill /invoice/challan in respect of input services?
Yes. Cenvat credit can be availed only on or after the day on which the invoice/bill or challan as per Rule 9 of CENVAT Credit Rules 2004 is received. However in case of service tax paid on reverse charge by the receipent of the service, the CENVAT credit in respect of such input service shall be allowed on or after the day on which payment is made of the value of the service tax paid or payable as indicated in invoice, bill or challan.

Who is an "Input Service Distributor"?
An office of the manufacturer or provider of output service who receives invoices for the procurement of input services and issues invoices for the purpose of distributing the credit of Service Tax paid to such manufacturer or provider of output service is an Input Service Distributor. 

The credit of the tax amount so distributed to various places shall not exceed the total Service Tax amount contained in the original invoice / bill.

What is the format of the invoice / bill / challan to be issued by the input service distributor?
No specific format has been prescribed. However, the same should contain the following information:-
  • Name, address and Registration No. of the service provider.
  • Sl. No and date
  • Name and address of the input service distributor.
  • The name and address of the recipient to whom the Service Taxcredit is distributed.
  • The amount of credit being distributed.
Whether the input service distributors should get themselves registered with the Department? Whether they have to file any returns with the Department?
Yes. They have to register themselves as per the provisions under Service Tax (Registration of Special Category of Persons) Rules, 2005. They have to file half yearly returns by the end of the month following the half year. 

What are the records to be maintained by the persons availing credit?
The manufacturer of final products or the provider of output service shall maintain proper records for the receipt, disposal, consumption and inventory of the input and capital goods in which the relevant information regarding the value, duty paid, Cenvat Credit taken and utilized, the person from whom the input or capital goods have been procured is recorded and the burden of proof regarding the admissibility of the Cenvat Credit shall lie upon the manufacturer or provider of output service taking such credit.

What should be done, if an assessee is rendering both taxable services as well as exempted services, but the inputs and input services are common?

  • Separate accounts are to be maintained for the receipt, consumption and inventory of input and input service meant for providing taxable output service and for use in the exempted services. Credit should be taken only on that quantity of input /input services which are used for the service on which Service Tax is payable. (Ref. Rule 6 of Cenvat Credit Rules, 2004).
  • If separate accounts are not maintained, the provider of output service shall pay an amount equal to 5% percent of value of exempted goods and exempted services; or pay an amount as determined under sub-rule (3A); or in relation to provision of exempted services; subject to the conditions specified in sub-rule (3A) ibid. (Ref. Rule 6(3 & 3A) of Cenvat Credit Rules, 2004 read with Not.No.3/2011 CE (NT) dt.1.03.2011).

Whether Cenvat credit is admissible on capital goods which are exclusively used in providing exempted goods ?
No.

Is unutilized CENVAT credit refundable?
Refund of accumulated credit is admissible only in case of exports of finished goods or output service. Where any input or input service is used in providing output service or manufacture of goods which are exported, the CENVAT credit in respect of the input or input service so used shall be allowed to be utilized towards payment of service tax on any other output service or excise duty on other excisable goods. If such adjustment is not possible due to any reason, it will be allowed as refund subject to the safeguards, conditions and limitations specified by the Central Government.


Export of Services and taxable service used in relation to export of goods

What is Export of Services? Whether export of services is exempted from Service Tax?
What constitute export of service is defined in the Export of Service Rules, 2005. The export of taxable services is exempted from Service Tax.

What constitutes export of services?
The Export of Services, Rules, 2005 specifies 3 categories of cross border transaction of services and conditions that will be construed as export of services in cases of:
  • Specified services which are provided in relation to immovable properties situated outside India.
  • Specified services which are partly performed outside India [See list of services in Appendix 4] (Ref. Rule 3(1)(ii) of Export of Service Rules,2005).
  • The remaining taxable services, barring a few exceptions, when provided in relation to business or commerce, to a recipient located outside India, and when such services are provided not in relation to business or commerce, it should be provided to a recipient located outside India at the time of provision of such service.
However, where such recipient has commercial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of service only when order for provision of such service is made from any of his commercial establishment or office located outside India. [See list of services in Appendix 4] (Ref. Rule 3(I)(iii) of Export of Service Rules,2005).

Further condition to be met for treating the provision of any taxable service as export of service - payment for such service is received by the service provider in convertible foreign exchange.

Thus, each transaction has to be seen individually to ascertain if it constitutes export of services, fulfilling the requisite parameters.

If export proceeds are received in Indian currency, will it be denied export benefit?
If export proceeds are received in Indian currency, no export benefits shall be available. 

What are the incentives for export of services?
  • Taxable services may be exported without payment of service tax, provided the conditions specified in Export of Service Rules, 2005 are fulfilled.
  • Where service tax has already been paid on export of services to countries (other than Nepal and Bhutan), rebate/refund of such service tax, can be availed under notification no 11/2005-ST dated 19.4.2005
  • Where excise duty / service tax has already been paid on the inputs and input services used in export of services to countries (other than Nepal and Bhutan), rebate/refund of such excise duty on inputs and service tax paid on input services can be availed under notification no. 12/2005- ST dated 19.4.2005
  • Where taxable services are exported without payment of tax, but CENVAT Credit was availed, the refund of accumulated CENVAT Credit (if cannot be fully used for payment of service tax), may be claimed as refund under rule 5 of the CENVAT Credit Rules, 2004.
Whether service tax paid on taxable services used in relation to export of goods, Refundable?
Under Notification No.05/2006-CE(NT) dated 14.03.2006, as amended by Notification No.07/2010-CE(NT) dated 27.02.2010, refund of CENVAT credit is allowed in respect of:
  • Input or input service used in the manufacture of final product which is cleared for export under bond or letter of undertaking
  • Input or input service used in providing output service which has been exported without payment of service tax, subject to safeguards, conditions and limitations, as set out in the said notifications.
Where can one file the rebate claims or refund of unutilized CENVAT Credit?
The rebate claims or refund of utilized CENVAT Credit application has to be filed in the Central Excise or Service Tax Division/Group where the assessee is registered.

Where can one file claims for refund of service tax paid on taxable services used by the exporter of goods, allowed under Notification No 17/2009 ST dated 7.7.2009?
The manufacturer-exporter / exporter has to file the claim for refund to the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise, as the case may be, having jurisdiction over the factory of manufacture / the registered office or the head office, as the case may be, of such exporter.

Under Notification No.18/2009-ST dated 07.07.2009, the following two services have been exempted, if they are used for export of goods and where the liability to pay the tax on such services is on the exporter himself, on reverse charge basis,-
  1. Transport of goods by road, from the place of removal to any ICD, CFS, port or airport; or from any CFS or ICD to the port or airport; and
  2. Services provided by a foreign commission agent for procuring orders subject to fulfillment of conditions as set out in the said notifications.

Service Tax on receipt of services from outside India [Import of services]

What is the statutory provision regarding taxing of services provided from outside India and received in India ?
Section 66A of the Finance Act, 1994, inserted with effect from 18.4.2006, provides that where any taxable service is provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and is received by a person who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India.

Is the recipient of service liable to pay tax for the taxable service is provided from outside India?
The recipient of service shall be liable to pay tax if the provider of service do not have any established business or a fixed establishment in India. However, a person carrying on a business through a branch or agency in any country shall be treated as having a business establishment in that country (including India).

Where provider of the service has his business establishments in more than one country, which country should be treated as the country from which service is provided?
If the provider of the service (from outside India) has his business establishments in more than one country, the country, where the establishment of the provider of service directly concerned with the provision of service is located, shall be treated as the country from which the service is provided or to be provided. (Ref.: Section 66A (2) of the Finance Act,1994.)

What will be usual place of residence  of a body corporate?
Usual place of residence in relation to a body corporate means the place where it is incorporated or otherwise legally constituted. (Ref.: Explanation 2 to sub-section 2 of Section 66A of the Finance Act,1994.)

What constitutes import of services?
The Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 specifies 3 categories of cross border transaction of services and conditions that will be construed as import of services, namely, -
  • Specified services which are provided in relation to immovable properties situated in India [See list of services in Appendix-4] (Ref. Rule 3(i) of The Taxation of Services Rules 2006).
  • Specified services which are provided partly in India [ See list of services in Appendix -4](Ref. Rule 3(ii) of The Taxation of Services Rules 2006).
  • The remaining taxable services, barring a few exceptions, when provided in relation to business or commerce, to a recipient located in India. [ See list of services in Appendix -4](Ref. Rule 3(iii) of The Taxation of Services Rules 2006).
Thus, each transaction has to be seen individually to ascertain if it constitutes import of services, fulfilling the requisite parameters.

0 comments:

Post a Comment

Copyright © 2015 Accounting & Taxation All Right Reserved
Subscribe by Email Get Free Updates
Don't Forget To Join US Our Community
×
blogger