Upgrade and Save: Get 10% OFF on CAclubindia Pro Subscription! Use Code: SAVE10 Subscribe Now!

Credit of service tax paid during pre-production stages

Dinesh Kumar Agarwal (Article clerk) (117 Points)

28 September 2011

Is there any notification recently issued according to which service tax paid during pre-production stage. For example compnay has yet begin construction of plant but it has paid techinal advise fees to consultancy including service tax. Can the company take the credit of service tax paid at this stage??

Reply
Follow
Share

4 Replies

surender (Manager Accounts) (149 Points)
Replied 28 September 2011

You can take input credit only if your co. comes under services.And you have service tax number. Pl clarify in detail.

Upgrade to CAclubindia Pro. Subscribe Now!

surender (Manager Accounts) (149 Points)
Replied 28 September 2011

. Section 65(60) defines "scientific and technical consultancy" as any advice, consultancy, or scientific or technical assistance, rendered in any manner, by a scientist or a technocrat, or any science or technology institution or organisation, to a client, in one or more discipline of science or technology. The taxable service has been defined in clause 72 (za) of section 65 as "any service provided, to a client, by a scientist or a technocrat, or any science and technology institution or organisation, in relation to scientific or technical consultancy".

2. The taxable service should be understood in the context of its commonly understood meaning and scope. For instance, it would cover consultation, advice or technical assistance provided by a scientist or a technocrat or a science or technology institution on any issue relating to any branch of science and technology. Such consultation may be in the nature of an expert opinion/advice in regard to scientific or technical feasibility or any other scientific or technical aspect of a project, process or design, recommending an apt technology, suggestion for improvement in existing technology or process, providing consultation on any technical problem or about new technology, etc. Some of the specific issues raised and clarifications thereon are given below.

3. Points for clarification:

Point raised for clarification	Clarification
Whether services rendered by doctors, medical colleges, nursing homes, hospitals, diagnostic and pathological labs, etc. would come under the purview of the proposed levy.	In common parlance, these categories of service providers are not known as scientists or technocrats or science or technology institutions or organisations. They will not be covered under service tax.
Whether public funded research institutions like CSIR, ICAR, DRDO, IITs and IISc.,Regional Engineering Colleges etc, which are exempt from payment of income tax are covered under the service tax.	Yes. Service tax is liable to be paid when any scientific or technical consultancy service is rendered whether by public funded institutions or by private agencies.
Whether testing services will be covered under the proposed levy?	Mere testing will not attract service tax. However, in case testing is an integral part of the consultancy, then such activity is part and parcel of the taxable service and no abatement of any kind admissible.
Many public funded research institutions receive grants or aids from the Government for conducting research /project work. Whether such activities would be covered under the levy?	In the facts of this case, no service is rendered to any one. Hence the question of payment of service tax does not arise. However, if they render service to anyone on payment basis, service tax will be payable on such services.
Whether the service tax will be leviable on consultancy provided to government departments, public sector undertakings?	If scientific or technical consultancy is provided to a government department for which consultation fees are received, then service tax would be applicable.

Sushma Mevacha (Executive) (394 Points)
Replied 28 September 2011

If you are Menufacturing Unit and you wish to opt the Option of SSI Exepmtion under Notification No.08/2003-CE Dated 01/03/2003, i.e. want to clear final product without payment of excise duty up to150 lacs , with the condition that ,

"2. The exemption contained in this notification shall apply subject to the following conditions, namely: -

(i) a manufacturer has the option not to avail the exemption contained in this notification and instead pay the normal rate of duty on the goods cleared by him. Such option shall be exercised before effecting his first clearances at the normal rate of duty. Such option shall not be withdrawn during the remaining part of the financial year;"

If you wish to clear your final Product with Payment of Duty, the Credit is admissible for the Service Tax paid for those the Input Service that is defined as per the Rule 2 (l) of Cenvat Credit Rules, 2004.

CA Unnikrishnan Nair N (Chartered Accountant) (2083 Points)
Replied 28 September 2011

If it relate to setting up, it is ineligible since 01-04-2011. If such pre-production service relate advertisement or sales promotion, market research, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, legal, business exhibition and security, such service qualifies for cenvat credit. But as Sushma rightly pointed out, if you avail small scale exemption up Rs.150L, cenvat credit on input services will be disallowed.