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INPUT CREDIT ON PARTLY TAXABLE AND PARTLY EXEMPT SERVICES

Ankur Goyal (staff) (131 Points)

18 April 2011

I would like to know what will be the treatment if an assessee provides partly exempt and partly taxable services, then can he avail the credit of service tax paid on input services and by what amount. If the % of exempt services is 80% and taxable services is 20%.

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U S Sharma (glidor@gmail.com) (21056 Points)
Replied 18 April 2011

1st of all you have to decide that you are going to pay from zero level of service tax

if you are opting for value based exemption of 10 lacs for 80% then u cant avail both options simaltenously

for exempted as well as taxable services u have to maintain seperate input ledger for taxable and exempted services. for comon services in both u can take proportionate credit,

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Pinky Agarwal (Chartered Accountant) (426 Points)
Replied 21 April 2011

As per the Cenvat Credit Rules, 2004. Rule 6 of Cenvat Credit Rules 2004 provides that-:

a) where the service provider provides such output service which are chargeable to tax as well as exempted services, then, the provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service meant for use in the providing output service and the quantity of input meant for use in the exempt services.

b) If the service provider is unable to maintain separate records as above, then he has the choose from either of the following two options.

i) the provider of output service shall pay an amount equal to five per cent. of value of the exempted services; or

ii) the provider of output service shall pay an amount equivalent to the CENVAT credit attributable to inputs and input services used in, or in relation to, the provision of exempted services subject to the conditions and procedure specified in sub-rule (3A).

Provided that if any duty of excise is paid on the exempted goods, the same shall be reduced from the amount payable under clause (i):

Provided further that if any part of the value of a taxable service has been exempted on the condition that no CENVAT credit of inputs and input services, used for providing such taxable service, shall be taken then the amount specified in clause (i) shall be five per cent. of the value so exempted.