ASSOCHAM seeks new Cenvat Credit Rules
In a representation to the Finance Minister, P. Chidambaram, the ASSOCHAM has suggested replacement of the existing Cenvat Credit Rules with a new Cenvat Credit Rules,2006, to take care of practical aspects of business across the country. ASSOCHAM has identified a few issues on which there is confusion in the trade as well as government.
The confusion according to the ASSOCHAM is on issues related to
1. Credit of Service Tax on transport of final products from the place of removal.
2. Cenvat credit of Service Tax paid on mobile phones
3. Input services used in taxable and non taxable services
4. Input services by a manufacturer who is also a trader.
Is there any confusion? The problem actually is the Board has two faces. The laws made by them are fairly reasonable and correct, but when they interpret these laws, the other face takes over. This may be because when the laws are made, there is intensive consultation and vetting at various levels, including the law ministry. But clarifications are off the cuff remarks of the bureaucrats and often tend to be erratic and outright wrong. Take the issues raised by ASSOCHAM. Actually there need be no confusion at all, but ASSOCHAM is right; there is tremendous confusion.
1. Credit of Service Tax on transport of final products from the place of removal.DDT had extensively covered this issue. Please see TIOL-DDT 239 - 1111 2005. The law is very clear that transport of final products from the “place of removal” is an input service, but logical commissioners agitatedly ask in ASSOCHAM seminars, “how can the transport out from the depot to the customer be input service?”. Many confused assessees are convinced with this logic. Even the few courageous assessees, who had the audacity to take credit based on the “ill advice” of “unscrupulous” consultants, are threatened with penalty and interest. All this, because there is confusion at some high levels.
2. Cenvat credit of Service Tax paid on mobile phones. Though Board had been maintaining a deafening silence on the issue after that prankish circular of 2003, recently the Tribunal clarified the issue, when it observed, In the absence of any express prohibition, under the new Cenvat Credit Rules, 2004, I am of the view that Service Tax paid on Mobile Phone is available as credit to eligible Service providers of output service and manufacturers.
3. Input services used in taxable and non taxable services. Only last week we had carried an article on this contentious issue. The 20% credit is actually a boon to some service providers. If the confusion in this area is removed, consultancy work is bound to suffer badly.
4. Input services by a manufacturer who is also a trader. What happens to the input services used in his trading activities and what happens when common input services are used?
May be the concept of the same Cenvat Credit Rules for excise duty and Service Tax is not after all practical. Should we go separate Rules?