Utilization of Cenvat credit on specified 17 input services, when they are used for exempted as well as taxable services – Board clarifies.
As per sub-rule (5) of Rule 6 of the Cenvat Credit Rules, 2004, in respect of 17 services, full credit is allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services.
The Mumbai Chief Commissioner, had on 5th September, 2005 asked the Board for a clarification whether the restriction of credit utilization upto 20% would still apply to credit relating to such services. (That was certainly a good day for asking a clarification, being “Teachers Day”). The Teachers in the Board took a good two years time to study the issue and issued a leisurely clarification two years later on October 1 2007.
The Board clarification states
1. The basic purpose of identifying 17 specified services for special dispensation is that these services are used in relation to the entire activities of the service provider and cannot be co-related or apportioned with any inpidual service (whether taxable or exempted) provided by such service provider.
2. For example service tax paid on construction of an office of a service provider (who provides more than one service) cannot be linked with any particular service provided by him as it may be using it for various purposes and for all services provided by him.
3. Thus, these services are similar in nature to capital goods which is a part of fixed assets/cost that cannot be apportioned for maintaining separate records.
4. It is for this reason that there is no restriction in taking and utilization of credit on these services, so far as they are used for providing some taxable services.
5. If the restriction of 20% is applied to these services also, this basic purpose would be defeated.
6. As regards, 'taking' of credit is concerned, that is anyway available to all input services and there would not have been any reason to select these 17 services for placing them under sub-rule (5).
7. They have been placed in a separate sub-rule [i.e. sub-rule (5)] because in respect of utilization of credit of tax paid on these services, the restriction of 20% does not apply, while the restriction applies in all other cases.
8. In conclusion the credit taken in respect of the services can be utilized for payment of service tax without any limit.
Wonderful! One of the most logical and reasonable clarifications given by the Board, but as usual, they hide such important clarifications from the Public. It beats logic as to why the good Board is shy of making its good deeds public. In spite of the fact that the Board is full of good people, in spite of the fact that they are trade friendly, the fact remains that it is extremely difficult to get them to part with their creations.
Why don't they understand that their clarifications have meaning only when they are in the public domain? Or are they so obsessed with secrecy?
This clarification was given in October 2007 and we could bring it to you only today. We are ready to freely make available their pearls of wisdom only if they are ready to share them with the public, for whose service, they exist.