Section 66(a) of s tax

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Kirti Ram Dabral (Querist)
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18 February 2016 A Company paid an amount of Rs. 73945/- to foreign technician towards machinery installation consultancy in India as per their agreements terms with the foreign company.
Company has done accounting entry in their books-
P&M WIP A/c Dr. 73945
Service Tax Receivable A/c Dr 10353
TO Service Tax Payble 10353
TO Foreign Technician A/c 73945

As per section 66(a), Service tax is to be paid by the company receiving service as foreign technician is not having any office in India to provide the service.

My question is why company has debited amount in service tax receivable account. It should be capitalized and should be clubbed with Plant & Machinary WIP Account.

Please guide!

Prudhvi Raj

Prudhvi Raj (Expert)
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18 February 2016 hi

I think company posted correct entry assuming that company is eligible to take cenvat credit on particular machinery. If company is not eligible to claim cenvat credit ,then company has to capitalise that service tax portion to the machinery.

RULE 3 of the Cenvat Credit Rules, 2004 ('the Credit Rules') provides that a manufacturer of excisable goods or provider of taxable service is allowed to take credit of specified duties including service tax leviable under Section 66 of Chapter V of the Finance Act, 1994 ('the Finance Act'). In terms of this provision manufacturer of excisable goods and provider of taxable output services had been availing Cenvat credit of service tax paid on the input service received and used by them in or in relation to manufacturer of excisable goods or for providing taxable output services.