01 March 2010
We sale our finished product for 1 year warantee. This product gets some problem within 1 year(under warantee), now customer sends that product to us for free servicing, for that we procure external service on which we pay service tax(Input).
Now in this type of scenario Q (1) whether paid service tax(Input) will be claimable or not? Q (2) can we utilise this service tax with exice duty?
1. According to Service Tax Rule 2(k) defines input to mean (i) all goods, except light diesel oil, high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production; (ii) all goods, except light diesel oil, high speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service;
Explanation 1. - The light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol, shall not be treated as an input for any purpose whatsoever. Explanation 2. - Input include goods used in the manufacture of capital goods which are further used in the factory of the manufacturer;
As far as the service provider is concerned, input means all goods, except light diesel oil, high-speed diesel oil, motor spirit, commonly known as petrol and motor vehicles, used for providing any output service; 2. We can utilise service tax credit with excise duty.
10 August 2024
When dealing with the procurement of services under warranty and the implications of paying service tax (Input), it's important to understand how these transactions interact with your overall tax obligations. Here’s a detailed explanation addressing your queries:
### **Q1: Whether Paid Service Tax (Input) is Claimable or Not**
**Input Tax Credit (ITC) for Service Tax:**
1. **Eligibility for ITC:** - **Service Tax on External Services:** If you procure services from external vendors for servicing products under warranty, you are generally eligible to claim Input Tax Credit (ITC) on the Service Tax paid, provided the services are used in or in relation to the manufacture of your finished products. - **Purpose of Service:** The service should be used for business purposes, such as repairing or maintaining products sold, which is related to your taxable output.
2. **Conditions for Claiming ITC:** - **Invoice Requirement:** Ensure that you have a proper invoice from the service provider detailing the Service Tax charged. - **Usage of Service:** The services should be directly related to the business activities (i.e., repairing products sold). - **No Cenvat Credit Restriction:** Ensure that the nature of the service doesn’t fall under any restricted categories where Input Tax Credit is disallowed.
3. **Documentation:** - Maintain all records of invoices and service agreements related to the procurement of these services. - Ensure the service provider has provided a valid invoice with the Service Tax component clearly mentioned.
### **Q2: Can We Utilize This Service Tax with Excise Duty?**
**Utilization of Service Tax Credit:**
1. **Cenvat Credit:** - **Cenvat Credit Rules:** Under the Cenvat Credit Rules, Service Tax paid on input services can be utilized for paying excise duty. The service tax paid is eligible to be credited against your excise duty liability. - **Adjustment:** You can adjust the Service Tax credit against the excise duty payable on your manufactured goods.
2. **Filing and Compliance:** - **Maintain Records:** Ensure you maintain proper records of the service tax credit availed and utilized. - **Returns and Documentation:** Ensure accurate reporting of the service tax credit in your excise returns as per the prescribed formats and guidelines.
### **Procedure for Claiming Input Tax Credit and Utilizing it Against Excise Duty**
1. **Claim ITC on Service Tax:** - Obtain a detailed invoice from the service provider showing Service Tax paid. - Record the Service Tax paid in your books of accounts.
2. **Utilize ITC Against Excise Duty:** - While filing your excise duty returns, declare the service tax credit availed. - Offset the available credit against your excise duty liability.
3. **Compliance:** - Ensure all compliance requirements are met for claiming and utilizing ITC. - Regularly review the latest updates and guidelines issued by tax authorities to ensure compliance with any changes in the rules.
### **Summary**
- **Q1:** Yes, you can claim Input Tax Credit for the Service Tax paid on external services used for servicing products under warranty, provided it is for business purposes and you meet all the conditions for claiming ITC. - **Q2:** Yes, you can utilize the Service Tax credit against excise duty as per the Cenvat Credit Rules. Ensure proper documentation and compliance with the relevant tax laws.
By following these procedures and ensuring compliance with the applicable regulations, you can effectively manage and utilize your service tax inputs.
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