Why CENVAT Credit Not Utilised Under Reverse Charge
The CENVAT are available as credit to a service provider when they are pain on :
- Any input or capital goods received in the premises of the provider or output service on or after the 10th day of September’ 2004
- Any input service received by the provider of output services on or after the 10th day of September’ 2004
The Cenvat Credit so available can be used for the following purpose to a service provider:
- An amount equal to Cenvat Credit taken on inputs if such inputs are removed as such after being partially processed
- An amount equal to the Cenvat Credit taken on Capital Goods if such capital goods are removed as such
Service Tax on any ouput service
As per Rule 2(p) of Cenvat Credit Rule, 2004 defines output services as;
“output service” means any service provided by a provider of service located in the taxable territory but shall not include a service;-
- Specfied in section 66D of the Finance Act; or
- Where the whole of service tax is liable to be paid by the receipt of service.
Accordingly, output service definition includes all services other than:
- Negative Services [specified in section 66D of the Finance Act]
The exclusin aims to disallow the credit against the Negative services on which no service tax is payble.
- Where the whole of service tax is liable to be paid by the receipt of service
This exclusion provides that a service provider on whose services the recipient is liable to pay the entire tax, such services would not qualify as output services from the perspective of service provider. Servies where whole of the service tax is to be paid by the service receipient are as follows.
- Services of insurance agent
- Services of Goods Transport Agency (GTA) of goods transport
- Sponsorship service
- Services of Arbitral Tribunal
- Legal Services of Advocate or Advocate Firms
- Services of director to company (entry added w.e.f. 7-8-2012)
- Support Services by Government or Local Authorityexcludingrenting of immovable property and services specified in clauses (i), (ii) and (iii) of Section 66D(a) of Finance Act, 1994 (These cover postal, port, airport and railway services)
- Renting or hiring of motor vehicle designed to carry passengers to any person who is not in the similar line of business
- Supply of Manpower for any purpose or security service (The words ‘or security service’ were added w.e.f. 7-8-2012
- Service portion in execution of Works Contract
- Services received from non-taxable territory (Import of Service)
Thus, in all above cases, the services would not be considered as output services from the perspective of service provider. Accordingly, service provider in above cases would not be able to CENVAT credit of input and input services used in provision of such services.