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Service tax on renting of cars

01 March 2013

We are a firm of architects. We are regularly renting cars for transporting our senior personnle to site. We are paying the service tax on teh same on reverse charge mechanism. Are we entitled to take the crenvat credit of the service tax so paid?

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6 Replies

Madhukar N Hiregange (Chartered Accountant) (39034 Points)
Replied 01 March 2013

Originally posted by : Sangeethashenai

The definition itself restricts services of renting of MV. Therefore you would not be able to avil the credit though used for your profession.

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Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
Replied 02 March 2013

Please refer to the exclusion part of the definition of Input service under Rule 2(l) of CCR 2004 as amended. You are not eligible to take cenvat credit on service tax paid to rent a cab service providers, whether you pay ST on reverse charge or not on reverse charge.

Only those service receivers who have motor vehicle in the books as fixed asset can take cenvat credit of service tax paid to rent a cab service providers.

But I am little confused to find the exact interpretation of the exclusion clause in Rule 2(l).

Seek inputs from Friends on this.

Regards,

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 03 March 2013

You are not eligible to take cenvat credit of service tax paid under reverse charge mechanism for rent a cab service unless your output service falls under specified services as listed below . This has specifically excluded as input service as per defination contained in Cenvat credit Rules, 2004.

In order to claim the benefit of rent a cab service, your output service needs under of the below service categories

1. Courier Agency service

2. Tour Operator Service

3. rent a cab service

4. Cargo handling Service

5. Transport of goods by road service

6. Outdoor catering Service

7. Pandal or shamiana service

If and only if you are fallling under this category, you are eligible to cenvat credit of service tax paid on rent a cab service

Thanks and regards,

Manoj B. gavali

Dipjyoti Majumdar (CA in service & CS. dipmaj@ rediffmail.com ) (3468 Points)
Replied 04 March 2013

Manoj,

Can you please identify the Rule where it is written about the 7 specific services pointed out by who whose providers are entitled to cenvat credit of service tax paid to rent a cab service providers to them.

Regards,

Manoj BG (Tax Professional and in Service) (1795 Points)
Replied 04 March 2013

Hi Dipjyoti,

If You see amended defination (as amended by Finance Act 2011) of "Input Services" as per CCR, 2004 , following is mentioned -

„(l) “input service” means any service, -

(i) used by a provider of taxable service for providing an output service; or

(ii)used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture

of final products and clearance of final products upto the place of removal,

and includes services used in relation to modernisation, renovation or repairs of a factory, premises

of provider of output service or an office relating to such factory or premises, advertisement or sales

promotion, market research, storage upto the place of removal, procurement of inputs, accounting,

auditing, financing, recruitment and quality control, coaching and training, computer networking,

credit rating, share registry, security, business exhibition, legal services, inward transportation of

inputs or capital goods and outward transportation upto the place of removal; but excludes

services,-

(A) specified in sub-clauses (p), (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105)

of section 65 of the Finance Act (hereinafter referred as specified services), in so far as they

are used for-

(a) construction of a building or a civil structure or a part thereof; or(b) laying of foundation or making of structures for support of capital goods,

except for the provision of one or more of the specified services; or

(B) specified in sub-clauses (d), (o), (zo) and (zzzzj) of clause (105) of section 65 of the

Finance Act, in so far as they relate to a motor vehicle except when used for the provision of

taxable services for which the credit on motor vehicle is available as capital goods; or

cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance,

health insurance and travel benefits extended to employees on vacation such as Leave or

Home Travel Concession, when such services are used primarily for personal use or

consumption of any employee;‟

It means input services specifically EXCLUDES cenvat credit mentioned under following clauses i.e.

1. General Insurance Services - Section 65(105)(d)

2.Rent a cab service - Section 65(105)(o)

3. Authorised Service Station Service - Section 65(105)(zo)

4. Supply of Tangible Goods for use services -section 65(105)(zzzzj)

So far as they are relating to motor vehicle..

The second limb of expression provides that "except when used for the provision of taxable services for which the credit on motor vehicle is available as capital goods" which means that this exception does not apply to the cases where assessee shall be entitled to take cenvat credit of excise duty paid of motor vehicle. Now we need to identify who are the eligible asessees that can taken cenvat credit on motor vehicle as capital goods. For the same, we need to see the defination of capital goods as well in details .

The defination of capital goods provides as specified in Rule 2(a) of CCR, 2004 follows -

(a) "capital goods" means:-

(A)	the following goods, namely:-
	(i)	all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No. 68.05 grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act;
	(ii)	pollution control equipment;
	(iii)	components, spares and accessories of the goods specified at (i) and (ii);
	(iv)	moulds and dies, jigs and fixtures;
	(v)	refractories and refractory materials;
	(vi)	tubes and pipes and fittings thereof; and
	(vii)	storage tank, used-
		(1)	in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or
		(2)	for providing output service;
(B)	motor vehicle registered in the name of provider of output service for providing taxable service as specified in sub-clauses (f), (n), (o), (zr), (zzp), (zzt) and (zzw) of clause (105) of section 65 of the Finance Act;

Since the definition of capital goods is an inclusive definition, we shall take cenvat credit of those caital goods which are mentioned under teh definition.

Point No. B specified that capital goods means motor vehicle registered in the name of provider of output services FOR PROVIDING TAXABLE SERVICES AS SPECIFIED IN SUB CLAUSES (f),(n),(o),(zr),((zr), (zzp), (zzt) and (zzw) of clause (105) of section 65 of the Finance Act. HENCE ONLY WHEN MOTOR VEHICLE REGISTERED IN THE NAME OF SERVICE PROVIDER AND ALSO ONLY WHEN THE SAME IS USED FOR PROVIDING TAXABLE SERVICES AS MENTIONED ABOVE, THEN ONLY THE MOTOR VEHICLE SHALL BE CONSIDERED AS CAPITAL GOODS.

Now we go to the definition of Input services and do harmonise interpretation of defination of Input services with definaition of capital goods. Thus, assessee providing specified services as mentioned in definiation of capital goods shall be considered as eligible to take cenvat credit of motor vehicle as capital goods. and hence if we interprete second limp as i mentioned above earlier, you can read the provision as a whole. Therefore, when service provider providing specified services shall only be eligible for rent a cab service.

The specified services mentioned under different clauses as given in definition of capital goods is nothing but the i had already mentioned in my earlier reply.

Thanks and Regards,

Manoj B. Gavali