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DISCLOSURE OF RULE 6 OF CENVAT CREDIT IN ST-3 RETURN- PRACTICAL ASPECTS PART 3

Service Tax - By: - ashish chaudhary - Dated:- 24-10-2015 Last Replied Date:- 9-11-2015 - Having discussed on the disclosure of availment and utilization of credit in previous two articles, we shall move on to examining applicability of Rule 6 of Cenvat Credit Rules to a service provider and its disclosure in the Return. In any value added tax system, credit of tax paid at input stage is eligible for adjustment against output liability. Cenvat credit rules have also been formulated based on the .....

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that expenditure incurred have contributed to generation of revenue on which no tax has been charged and accordingly right to take credit is also curtailed. A. Applicability of Rule 6 Rule 6 of Cenvat Credit Rules is applicable where a person has been providing both taxable as well as exempted services. It requires that credit should be reversed on input/input service to the extent it has been used for provision of exempted services. Important features of Rule 6 are as follows: (a) Rule 6 is ap .....

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r any other notification, credit not to be taken and Rule 6 not applicable.(e.g. restriction imposed under abatement notification or valuation rule) (c) If services/material have been exclusively used for providing exempted service, no credit shall be admissible and hence no applicability of Rule 6. (Expenditure incurred in generating revenue on which no tax charged) (d) If services/materials have been exclusively used in providing taxable service, take full credit and no need to apply Rule 6. ( .....

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used commonly for providing taxable and exempted service is required to be reversed under Rule 6 to the extent used in providing exempted/non-taxable service.(Follow any of the option given under rule depending on the business profile. Discussed below) (f) Rule 6 is not applicable in respect of services exported outside India and services provided to SEZ unit. (export cannot be taxed and corresponding benefit cannot be denied) (g) Rule 6 is not applicable for capital goods also. If capital good .....

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d exempted service: This may not be feasible option for service provider especially in respect of input services as many services which are common are used in providing both taxable as well as exempted services i.e. rent, audit fee, bank charges etc. 2) 6%/7% reversal option: Reversal can be made @ 6% on value of exempted goods and 7% (6% till 31st May, 15) on value of exempted service. Take full credit. The reversal cannot be charged to customer. May be advisable in cases where exempted turnove .....

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can be taken based on actual records while credit on input service can be taken based on option 2 or 3 above. There are many intricacies in following these rules which have not been discussed at the relevant place. C. Disclosure in the Return: All adjustments related to Rule 6 are made in section I of the Return. Column wise discussion is made explaining the same: Section I1 of the Return: This section has certain questionnaire which needs to be answered in yes/no depending upon the option to be .....

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he return is applicable mainly for manufacturer engaged in manufacturing of exempted goods. Column I 2.2: This is the most important part of Return pertaining to cenvat credit wherein value of exempted services provided by service provider is required to be disclosed. Following important aspects need to be considered while arriving at the value of services to be disclosed: Aspects to be considered while arriving at the value of exempted services: a) Reversal is required to be made @7% of exempte .....

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d services which are rendered in the non taxable territory. - Services which are exempted from whole of service tax by way of some exemption notification are exempted services. For e.g. services covered by exemption notification no. 25/2012-ST. - Services where abatement is granted subject to condition that credit of input AND input service is not admissible. Important to note that the restriction should be imposed in the notification for taking credit on both input and input service. If restric .....

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tion of exempted service as it is necessary that the activity should first satisfy the definition of service for being covered under exempted service. Thus transfer of title in goods, immovable property etc. may not be considered exempted service. - Trading of goods could be said to be excluded from the definition of service and hence not an exempted service. If considered so, no need to apply Rule 6. On the other hand, trading is covered by negative list also, which is exempted service for Cenv .....

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read with Rules. Generally, this may be taken as per invoice amount. - In case of abatement services, the value shall equivalent to the amount for which abatement has been given. (e.g. person providing services of transportation of goods by rail of say 1,00,000/- abatement is 70%. On 30% portion i.e. 30,000/- service tax has already been charged. On balance 70,000/- he may pay amount @ 7% and take full credit on input/input service) - In case of money changing, air travel agent etc. where specia .....

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0/- (1,00,000-90,000) or ₹ 9,000 (10% of 90,000) whichever is higher i.e. 10,000/- not entire 1,00,000/-) - Trading of securities is also considered as exempted service. Value to be taken same as above for trading of goods except that instead of 10%, value to be taken @ 1% of purchase price. - Services of extending deposit, loans or advances where consideration is received in the form of interest/discount shall not be considered exempted service and no need to reverse the credit. Above com .....

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to be made by applying 7% on value of exempted services provided. This reversal is required to be shown here. Having reversed here, full credit can be taken on input/input service. ii) Proportionate reversal method: Under this method, following methodology is adopted for reversal of credit: - Calculate percentage of exempted turnover to total turnover in the previous financial year. - Apply the percentage on the input/input credit availed during the month. This reversal is made on provisional ba .....

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