12 August 2015
My client has purchased software which needs to be capitalized. The vendor has charged service tax on it. Software is not a capital good by definition in CCR, 2004. I want to know whether service tax input credit can be taken on fixed asset(software) purchase or not? Pls specify the section/rule/notificatio nos for reference.
01 August 2024
In the context of service tax on the purchase of software, it's important to understand the rules regarding input credit for capital goods and fixed assets. Here’s a detailed explanation:
### **Input Credit on Capital Goods**
1. **Capital Goods Definition:** - Under the Service Tax laws, capital goods are typically defined in the Cenvat Credit Rules, 2004 (now the Goods and Services Tax (GST) framework). Service tax input credit rules have evolved over time, and the definition of capital goods has changed with different amendments.
2. **Software as Capital Goods:** - Software itself is not considered a capital good under the Cenvat Credit Rules, 2004, specifically for service tax. This means that generally, software does not fall under the definition of capital goods where credit can be claimed.
### **Service Tax Input Credit on Fixed Assets**
1. **Input Credit on Fixed Assets:** - For fixed assets like software, if the vendor has charged service tax, the credit for this service tax can be claimed under certain conditions. Even though the software is not defined as a capital good in the Cenvat Credit Rules, the service tax on input services related to fixed assets can often still be claimed.
2. **Relevant Provisions:** - **Cenvat Credit Rules, 2004 (before GST):** Rule 2(a) defines capital goods, and software is not included in this definition. However, Rule 3(1) allowed credit of service tax paid on input services, which could be utilized for the payment of output service tax.
- **Notification No. 27/2012-ST:** This notification provided for certain exemptions and clarifications regarding the use of service tax credit on input services and capital goods.
- **Rule 6(5) of Cenvat Credit Rules, 2004:** Certain services used in relation to the manufacture of final products or provision of output services are eligible for input credit.
- **Service Tax Input Credit Rules (GST Transition):** Under the GST regime, the relevant provisions for input credit on capital goods and services are found in the CGST Act and rules. The principles from the earlier Cenvat Credit Rules are carried forward with modifications.
### **Claiming Input Credit Immediately**
- **Booking of Fixed Assets:** - You can claim the service tax input credit on the purchase of fixed assets (including software) immediately, even while booking the asset. The input credit should be claimed in the period in which the invoice is received and the payment is made.
- **Documentation and Compliance:** - Ensure to maintain proper documentation, including invoices, proof of payment, and other supporting documents as required under the applicable rules. - The credit should be claimed in the service tax returns for the period in which the service tax was paid.
### **Summary of Key References**
- **Cenvat Credit Rules, 2004 (Rule 2(a) and Rule 3(1))**: Defines capital goods and eligibility for input credit. - **Notification No. 27/2012-ST**: Relevant for exemptions and clarifications. - **GST Framework (Post-2017)**: Transition of the principles of input credit from the earlier service tax regime.
### **Conclusion**
While software itself is not categorized as a capital good under the earlier Cenvat Credit Rules, you can generally claim service tax input credit on the purchase of software, provided it is related to the provision of taxable services. Ensure to follow the latest GST provisions if you are under the GST regime, as the rules might have evolved.
For the most accurate and detailed advice, especially given the transition to GST, consulting with a tax professional or accountant who is well-versed in current regulations is recommended.
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