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Cenvat Credit & Service Tax

(Querist) 06 May 2008 This query is : Resolved 
Respected Dear Sir(s),

We hv following query. We request your Valuable review on this.

The assessee is paying service tax on goods transportation by road freight....as a service receipient.

The assessee has availed credit of ST paid by it on Advertisement Exp. and have utilised the same for paying service tax on freight, payable by it as a receipient of service.

The assessee has done so upto 1st March, 2008, under bona fide assumption that, it is a "deemed service provider" and therefore can take credit and utilise the same for payment of service tax on frieght.

Sir, Will u please guide us as to
1. Whether such a credit can be availed and utilised by the Service Receiptient for Payment of Service Tax on Freight ?
2. Which are the sections/provisions/rules under which the assessee is eligible OR not eligible to availe and utilise such credit ?

Thanking You.

Awaiting a reply.
Rajesh Kumar (Expert) 06 May 2008
As per the law, the recepient of service is required to pay the service tax. The department claims that although the recepient pays the service tax, it is not an output service of the recepient, and hence the recepient is required to pay the tax in cash (not utilizing the Cenvat Credit). Further, since this is not an output service, the recepient of this service cannot be termed as Service Provider, and hence he is not eligible to claim Cenvat Credit.
The departmental contention has some merit.
Thus, if you are not a manufacture or a service provider, and merely paying service tax on GST, you are no eligible for Credit of service tax, and required to pay the GST by cash only.
However, if you are a manufacturer, or a service provider, then such Service of GST is an input service, and after paying the taxes in cash, you can take credit of the service tax paid on GST and use it for payment of other Central Excise duty ot Service Tax.
Sumit Shingala (Querist) 06 May 2008
Sir,

I agree with your contentions but i would like to draw your attention to the fact that

1. Act "deems" the service receipient in present case as "Service Provider"

An explanation to this effect was inserted in Cenvat Credit Rules, 2004....and later on removed...

Howver, the terminology of the explnation was like "for the removal of doubt.....#####"
which leads to imply that such an explanation was for removal of doubt only and its exsitence or non-existence does not alter the situation.

....Will u please throw some light on this ?
Rajesh Kumar (Expert) 06 May 2008
Good point raised. I will examine the issue in the light of the inputs provided by you. Thanks.


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