CENVAT CREDIT UNDER SERVICE TAX

  Union Budget 1994-1995 has introduced Service tax as was levied it upon three services from 1-7-1994. That time no one has imagined Such a huge collection of revenue from this sector. However, it has been widened in future and its covered upto 43 services in the year of 2001 and now a days it covers 115 services.

Due to this development it has been noticed that the Assessee of service tax are feeling difficulties regarding input services obtained for providing output services. This fact was have caused cascading effect [tax on Tax] in relation to payment of service tax on out put services. Our legislation has considered this problem and firstly introduced service tax credit rules 2002 vide notification no 14/2002-ST [F-No-B11/1/2002-TRU] date 01-08-2002.

Rule 3 of service tax credit Rules 2002 provides credit of tax paid towards input services, which was subject to use payment of service tax for out put services. Credit may taken on or after 16^th day of august 2002 in relation to same category of taxable services and in other cases on or after 14^th day of May 2003 on the basis of Bill, Invoice or Challan issued by the input service provider. Enter-alia, it was have been also provided that service provider shall be allowed to take such credit on or after the day on which he makes payment of the value of input service and service tax paid or payable as indicated in invoice, bills or Challan referred in sub-rule 1 0f Rule 5.

This change has grants relief to Assessee from Cascading effects of service tax. But our Government was have not to stopping these liberalizations in taxation sector, including the Service tax. In this continuance CENVAT Credit Rules 2004 has been introduced. From this new introduction our legislation has extended the credit benefit towards the input services to payment of service tax as well as central excise duty. In other words now the credit of service tax is available across the services to goods. This new change has been granted a measure tax relief to the manufacturer on account of payment of central excise duty as well as service tax. Service provider also get credit of Central Excise duty earned from inputs obtained for providing output services.

It is very important to explain here the illegibility to avail service tax credit under new provisions has been defined under rule 3 of CENVAT Credit Rules 2004. As per this rule enter-alia, a manufacturer or the producer of final product or a provider of taxable products shall be allowed to take credit of service tax available under section 66 of Finance Act 1994. The CENVAT Credit may be utilized for the payment of service tax for any out put services. Provider of out put service or an Assessee can take credit only for input services.

The term input services mean any service use by a provider by taxable service for providing for out put services and includes services use in relation to setting up, modernization, renovation or repairs of factory premises of provider of out put service or an office relating to such factory or premises, advertisement of sale promotion, market search, storage of the goods for removal, procurement of the input activities relating business such as accounting, auditing, financing, se4curity and quality control, coaching & training, computer networking, share registry, security, transportation of input or capital goods and transportation upto the place of removal.

Credits of such input services may be taken on the basis of tax paying document i.e. invoice, Bill, or Challan, showing payment of service tax. In other case there is no provision under which credit of service tax may be granted under Service tax Law.