Cen vat credit on input services received from director
This query is : Resolved
17 October 2013
hi there.....
we are a limited co and we are register as a Input Service Distributor.
we are receiving the service from our director for which we are paying remuneration to our director under the head of Director Sitting fees and Commission on sales.for which under reverse charge we are paying service tax.
My query is, can we avail the service tax Credit for this services.
please provide the notification for reference purposes.
Thanking you.....
we are a limited co and we are register as a Input Service Distributor.
we are receiving the service from our director for which we are paying remuneration to our director under the head of Director Sitting fees and Commission on sales.for which under reverse charge we are paying service tax.
My query is, can we avail the service tax Credit for this services.
please provide the notification for reference purposes.
Thanking you.....
17 October 2013
The remuneration paid to non-executive directors alone are covered under the reverse charge mechanism - any payment to executive or whole time directors, including sitting fees and commission are not liable to service tax, since the relation between the company and whole-time/executive director is one of employer-employee and not service provider/receiver.
CBE&C, vide letter No. 324/Comm(ST)/2008 dated 1-12-2008 [20 STT 20 (St)], has clarified that commission paid by company to its directors (even if linked with performance or with financial results of the company) is nothing but remuneration paid by employer to employee. The relationship between employer and employee is distinct from relation between a service receiver and service provider. Hence, so long as activities performed are duties within the framework of terms of employment, amount paid by employer to employee, even if termed as commission, would not be treated as commission under definition of Business Auxiliary Service and service tax would not be leviable.
The reverse charge can only be paid in cash and not by utilization of CENVAT credit. On payment of service tax under reverse charge mechanism by cash the service recipient is eligible to claim CENVAT credit of the amount paid. It is well settled that Board of Directors are entrusted with task of overall administration of a company.
The Definition of Input Service as contained in rule 2(l) of Cenvat Credit Rules includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, procurement of inputs, accounting, auditing, financing, recruitment and quality control etc.
All these services are certainly related to administration of a company. Hence, in my view, the company will be eligible to avail Cenvat credit of service tax paid on remuneration paid to directors.
It is well settled that the term ‘includes’ expands the scope of the definition. It is also settled ‘in relation to’ is a broad term. It is expansive and not restrictive [The term ‘means’ is restrictive].
The assessee paying service tax under reverse charge method will be eligible to avail Cenvat credit of the service tax paid, on the basis of GAR-7 challan (earlier TR-6 challan) by which the tax is paid [Rule 9(1)(e) of Cenvat Credit Rules, as amended w.e.f. 1-5-2006]. The assessee should pay service tax in cash i.e. without utilising Cenvat credit.
Since the provisions of CENVAT Credit Rules 2004 specifically provides the documents required for claiming CENVAT credit and defines Input Services,no separate notifications or circulars are required for claiming Input CENVAT Credit on Service Tax paid under reverse charge mechanism. Notification no 30/2012 has not expressly prohibited the claim of CENVAT Credit under Reverse Charge Mechanism on Input Services received and hence in compliance with the provisions of CENVAT Credit Rules 2004 the input credit can be claimed.
Ashwini, I hope I have been able to clarify your query to your satisfaction.
CBE&C, vide letter No. 324/Comm(ST)/2008 dated 1-12-2008 [20 STT 20 (St)], has clarified that commission paid by company to its directors (even if linked with performance or with financial results of the company) is nothing but remuneration paid by employer to employee. The relationship between employer and employee is distinct from relation between a service receiver and service provider. Hence, so long as activities performed are duties within the framework of terms of employment, amount paid by employer to employee, even if termed as commission, would not be treated as commission under definition of Business Auxiliary Service and service tax would not be leviable.
The reverse charge can only be paid in cash and not by utilization of CENVAT credit. On payment of service tax under reverse charge mechanism by cash the service recipient is eligible to claim CENVAT credit of the amount paid. It is well settled that Board of Directors are entrusted with task of overall administration of a company.
The Definition of Input Service as contained in rule 2(l) of Cenvat Credit Rules includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, procurement of inputs, accounting, auditing, financing, recruitment and quality control etc.
All these services are certainly related to administration of a company. Hence, in my view, the company will be eligible to avail Cenvat credit of service tax paid on remuneration paid to directors.
It is well settled that the term ‘includes’ expands the scope of the definition. It is also settled ‘in relation to’ is a broad term. It is expansive and not restrictive [The term ‘means’ is restrictive].
The assessee paying service tax under reverse charge method will be eligible to avail Cenvat credit of the service tax paid, on the basis of GAR-7 challan (earlier TR-6 challan) by which the tax is paid [Rule 9(1)(e) of Cenvat Credit Rules, as amended w.e.f. 1-5-2006]. The assessee should pay service tax in cash i.e. without utilising Cenvat credit.
Since the provisions of CENVAT Credit Rules 2004 specifically provides the documents required for claiming CENVAT credit and defines Input Services,no separate notifications or circulars are required for claiming Input CENVAT Credit on Service Tax paid under reverse charge mechanism. Notification no 30/2012 has not expressly prohibited the claim of CENVAT Credit under Reverse Charge Mechanism on Input Services received and hence in compliance with the provisions of CENVAT Credit Rules 2004 the input credit can be claimed.
Ashwini, I hope I have been able to clarify your query to your satisfaction.
17 October 2013
Thank you very much sir for your valuable opinion.
so hereby i can summaries that we can avail the cenvat credit of service tax paid under reverse charge on the Services received from the director (not whole time director i.e. independent director or other) it can be sitting fees or commission on sales or any other remuneration by what ever name called.
so hereby i can summaries that we can avail the cenvat credit of service tax paid under reverse charge on the Services received from the director (not whole time director i.e. independent director or other) it can be sitting fees or commission on sales or any other remuneration by what ever name called.
17 October 2013
Services provided by the director will come under the reverse charge system and service tax will be applicable on these services. After the service tax paid under the reverse charge system company can take the cenvat credit on it.
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