100 % cenvat credit

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Smehta

CA Practice

85 Points Joined March 2007

Dear Sir,

1)A proprietory firm is carrying on trading activities in yarn.They are yarn dealers for many yarn manufacturers.
2)They also get commission on sale of their yarn products every month.
3)No other actvity is carried on except yarn trading & commission income.
4)Proprietory firm has incurred foll: common expenditure in carrying out above two activities from same premises:
---i)telephone /mobile exp
---ii)audit fees/c.a.consulting fees
---iii)constructon of office premises(major renovation rs.4 lacs)---eligible for 100% credit
---iv)office insurance ---eligible for 100% credit

query:1)since firm is carrying out only one taxable service (other being trading of yarn)whether cen.credit on above expenditure can be claimed proportionately in ratio of yarn trading & yarn commission ?

2)since there is only one taxable services whether whole amt. of cenvat credit can be claimed agt. ser.tax payable on commission output services?

3)If no, then in what manner?

smehta

Replies (4)

Guest

439030 Points Joined August 2012

Since iirm is carrying Taxable and Non Taxable Activity ..... However it can claim credit at 100 % on 3 & 4 service but for 1& 2 service it ca only claim 20% credit on S.T. payable .. balance will be carried forward

Pritam

95 Points Joined March 2007

Priyanka is right. I would like to add that it would be better that you segregate the expenses (if its possible ) & claim the credit on the input services used in providing taxable services. Otherwise you can choose 20% rule as mentioned above.

Smehta

CA Practice

85 Points Joined March 2007

in above case assessee is a trader in yarn and not a manufacturer.He carries out only one taxable service viz.commission income .Rule 6(1) speaks of ...."manufacturer of exempted goods or exempted services"...In above case assessee is not involved in 'manufacturing'. Rule 6(2) states that..."and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts...." So, there is no taxable & non-taxable services.Only one taxable service is provided. Pl. give your opinionin ,in light of above clarification,whether he will have to apportion cenvat credit available on input services as per trading turnover-commission ratio or he can avil 100% input service credit?

Pritam

95 Points Joined March 2007

Yes S Mehta. I appreciate your clarification. I would like to add that, Rule 2 (e) defines exempted services - means taxable services which are exempt & includes services on which no service tax is leviable u/s 66 of Finance Act. Hence you can see that exempt service means a service on which no service tax is leviable. Trading is a service which is not subjected to service tax. Though its a litigable area hence being conservative in approach I would prefer utilising 20% than choosing a aggressive option.