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Service tax credit can avail to pay central excise duty

Ramesh (Manager) (43 Points)

05 July 2012

Hai,

We are manufacture of Conveyors, we will manufacture our equipments in semi finished condition at our factory premises and we will despatch the goods to our customer place. At our customer place we will assemble / erect our semi finished components to convert into finished component through our nominated vendor, for which vendor will submit a Bill + Service Tax to us.

We will take the credit in our books at our HO against vendor invoice after made payment and same will be distributed in the form of transfer note to our manufacturing unit through Service Distribution Registration.

At our factory they will take above credit and utilized for payment of Central Excise Duty to clear the goods.

Kindly suggest us, whether we are doing in right way.

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9 Replies

Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 05 July 2012

Yes you are correct, provided that the ownership is transferred to the buyer once the semi finished product leaves the factory gate.

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Ramesh (Manager) (43 Points)
Replied 05 July 2012

Sir,

Till erection, commissioning & handing over the entire plant to our customer it is our responsibility. Kindly give any reference Notifications / Circulars / Case Laws

Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 05 July 2012

If that be the case, then you also will have to charge Service tax on the erection and commissioning part, provided you are not paying excise duty on the finished product. As this is a service which your providing to your customer, you will have to pay service tax on the said amount. You can refer to the illustrations as mentioned in the Central Excise Act in relation to the definition of manufacture. Hope it sorts out your query.

Ramesh (Manager) (43 Points)
Replied 05 July 2012

Yes, we are paying Central Excise Duty on Finished good value while clearing goods to customer. Coming to Erection activity done at customer place through sub vendor, for which activity we are charging to customer extra + Service Tax.

Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 06 July 2012

Then there is no non compliance and tax evasion on the same.

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Ramesh (Manager) (43 Points)
Replied 09 July 2012

Thank you for you suggestion, still i am doubt which i am Transfering credit and availing credit process at our manufacturing unit,

Cenvat Credit Rule as "all such goods which are directly or indirectly in relation to the manufacture of the final products"

As per above defination (before 1.4.2011) which i am availing credit post manufacturing (credit receiving on erection commissiong activity) more over there is no connectivity of Manufacture of Final Product.

In this context are we eligible the Credit at our manufacturing unit ?

Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 09 July 2012

Put your query in bullets, then I will be able to understand that precisely that where you are stuck.

Ramesh (Manager) (43 Points)
Replied 09 July 2012

Thank you for you suggestion,
Continuation to of my first thred still i am doubt which i am Transfering credit and availing credit process at our manufacturing unit,
Defination of Cenvat Credit Rule "all such goods which are directly or indirectly in relation to the manufacture of the final products" before 1.4.2011
which i am receiving credit post manufacturing activity (credit receiving on erection commissiong activity)
more over there is no connectivity of Manufacture Final Product.
In this context are we eligible the Credit, which we are getting service tax credit on erection on commissioning activity?

Ajit kumar Dubey (Taxation Manager) (637 Points)
Replied 09 July 2012

Based on your above query, the following points need to be looked upon:- 1) A manufacturer can avail CENVAT credit of duty paid on inputs and input services 2) As per CCR, 2004 Definition of both input and input services are different. In the present case you need to refer to the definition of input services. 3) The type of transaction in which you have entered you are paying excise duty at the time of removal from the factory for the finished products and not the main assembled product and i.e for the parts which are cleared form your factory. Now, for erection job either you need to charge service tax or Excise duty deeming it as the process of manufacture. 4) Irrespective of which duty is being charged by you, the process of sub contracting is forming part of the main job. Hence, you will be liable to CENVAT credit as the job is in relation to sub contracting of the main job on which either service tax or excise duty has been paid.