Sm........ (SR. EXECUTIVE) 11 August 2009

Service Tax Credit - IPS - very urgent.

We are subsidiry manufacturing company (in india) of our parent company (foreign company) and is paying service tax on royalty paid to our Parent company

Now the department in its SCN says we can't avail the credit of this service tax as we are only person liable to pay service tax in terms of rule 2(i)(d)(iv) of S.Tax Rules 1994 and is not the actual service provider (deemed service provider) Hence we are not eligible for this S.tax credit.

Please provide your views supported by some case laws

Its. urgent.

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2 Replies

k meenakshi sundaram (chartered accountant) 13 August 2009

Dear Mr Sameer,

1. As per the Servce (import of services) Rules, if an Indian pays service tax in respect of import of services is deemed to be provided by the Person LIable to pay service tax (your company) to himself (your company). Hence, this is not an "input service" as per Cenvat Credit Rules.

2. Service tax on Royalty is paid by your company under section 66A r.w. Rule 2(1)(d)(iv) of Service Tax Rules. As per Rule 3 of Service Tax Rules, cenvat credit can be taken only if service tax is paid on input service under section 66.

3. Hence, your company cannot take cenvat credit for the service tax paid (under import of services) on royalty paid to your foreign parent company.

k meenakshi sundaram (chartered accountant) 13 August 2009

Dear Mr Sameer,

1. As per the Servce (import of services) Rules, if an Indian Resident pays service tax in respect of import of services, then such service is deemed to be provided by the Person LIable to pay service tax (your company) to himself (your company). Hence, this is not an "input service" as per Cenvat Credit Rules.

2. Service tax on Royalty is paid by your company under section 66A r.w. Rule 2(1)(d)(iv) of Service Tax Rules. As per Rule 3 of Cenvat Credit Rules, cenvat credit can be taken only if service tax is paid on input service under section 66.

3. Hence, your company cannot take cenvat credit for the service tax paid (under import of services) on royalty paid to your foreign parent company