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CENVAT credit allowalble or not??

Sharad Saini (Student) (286 Points)

15 November 2010

hi,

There is a company say X ltd. This company sells readymade clothes.

It has 10 shops in India where the products are being sold. Out of total 10 shops, from 5 shops they sells goods purchased from different parties so purely a trading activity. From other 5 shops they sells goods of some other producer on which they gets commission from the producer. Commission is chargeble to service tax so they r charging it from producer.

Company is paying following rents:

Rent of Head office, Rent of all 10 shops (including service tax)

Now my q is that whehter company claim credit of the entire ST paid on rent or for just the 5 shops

thanx in advance...........

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4 Replies

sankalp (Tax Consultant ( Income Service Sale Tax )) (107 Points)
Replied 15 November 2010

Hi Sharad

You can adjust against u r ST liability .

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RAHUL KUMAR TAANK (CS PURSUING ) (672 Points)
Replied 16 November 2010

the service receiver reduces the amount mentioned in the invoice ! bill ! challan and makes discounted payments against the input service invoice due to any reason, the invoice will stand amended to that extent. The service receiver will be entitled to avail the CENVAT credit equivalent to the amount that is paid as service tax.

Sharad Saini (Student) (286 Points)
Replied 16 November 2010

so it means that company can claim credit of service tax on rent paid for all 11 locations even if 5 are not providing any taxable output service.???????????

plz clearify......

Kumar (CA) (666 Points)
Replied 17 November 2010

Hi Sharad,

1. Service tax input credit can be claimed only on Rent for 5 offices.

2. Cenvat Credit rules 2004 deals with Input credit availment of Excise duty and Service tax

Rule 2(l) defines an input service as one used to provide Output service and includes certain specified transactions. Rent of office premises is not covered under those specified transactions.

So next you have to check whether it is an input service used to provide output service.

Rule 2(p) defines an Output service as one which is used to provide taxable services.

3. In your case, since the 5 offices (involved in trading of goods) does not provide taxable services. Rent paid for those offices does not satisfy the definition of Input Service. Hence input credit can be availed only on 5 offices.