Can Service Tax credit be utilised for payment of clean energy cess?
CLEAN Energy cess is collected on certain specified goods like coal at the effective rate of Rs 50/- per MT. Consequent to the enactment of the Finance Bill 2010, several notifications have been issued and the “Clean Energy Cess Rules 2010” have also been notified for collection of this Cess. The provisions of the Notifications have been further explained by the JS(TRU-I) vide his letter dated 24th June 2010.
Since this clean energy cess is collected as “duty of excise”, there is a possibility of utilising the CENVAT Credit for payment of this cess. So, the CENVAT Credit Rules 2004, have also been amended simultaneously vide Notification 26/ 2010-CX.,(N.T.), Dated: June 29, 2010 to insert a proviso in sub-rule(4) of rule 3 as under:
“Provided also that the CENVAT credit of any duty specified in sub-rule (1) shall not be utilized for payment of the Clean Energy Cess leviable under section 83 of the Finance Act, 2010 (14 of 2010):”
The impact of the amendment is that any duty specified under sub-rule (1) shall not be utilised for payment of clean energy cess. But in addition to various “duties”, this sub-rule also allows a manufacturer/ service provider to take credit of the service tax leviable under section 66 of the Finance Act.
Now the question is whether the restriction under the proviso inserted for “any duty” is also applicable to “Service Tax”?
While one school of thought is of the view that, since the newly inserted proviso mentions ‘any duty specified in sub-rule (1) shall not be utilized for payment of the Clean Energy Cess' , the restriction applies only to utilization of different types of ‘duties' specified in sub-rule (1) like ‘duty of excise', ‘additional duty of excise', etc but not to utilization of credit of service tax paid on input services. And this leeway can be taken advantage of by coal mining companies who can exhaust their service tax credits which they accumulate by availing mining services, for paying Clean Energy Cess.
On the contrary, there is another school of thought which is of the view that the phrase ‘any duty specified in sub-rule (1) shall not be utilized for payment of the Clean Energy Cess' , refers to not only different duties of excise mentioned in sub-rule (1) but also credit of service tax paid on input services. This argument of restricting service tax credits is also supported by the clarification issued by TRU in its letter dated June 24, 2010. In paragraph 2 of this clarification it is stated as follows: “As a result the aggregate rate of cess would be Rs.50 per tonne. This amount has to be paid in cash as suitable amendment in the CENVAT credit rules, 2004 is being made to exclude payment of this cess using credit.” The word ‘credit' referred to in this TRU letter also includes credit of service tax paid on input services.
Board should take note of this confusion and issue a suitable clarification to the stakeholders – before the matter reaches the Supreme Court.