1. CENVAT CREDIT RULES
AND
PLACE OF PROVISION OF
SERVICE RULES
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2. CONCEPT OF VALUE ADDED TAX
STRUCTURE
•
Single and double entry system of accounting :
Distinguish
•
Two Nails Theory : Match
•
No entity based exemptions initially, now SEZ
can be billed without charging Tax.
•
Provision of refund for embassies and
exporters.

3. CONCEPT OF CREDIT
•
Credit is hard currency : immediately available
•
Credit affects bottom lines: Credit lost is money
lost
•
Credit affects purchase decisions
•
Credit is a business booster
•
Wrong Credit : Large Penalty

4. Step Towards Integration
 In the budget 2004-2005 the idea to extend credit
of service tax and excise duty across goods and
services was mooted. Zero charge by subcontractor - credit same category - credit under
different categories – present system.
 The CENVAT Credit Rules, 2004 came into force
from 10-9-2004, and have replaced the CENVAT
Credit Rules, 2002 and Service Tax Credit Rules,
2002.
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5. Who is eligible to credit
 Credit is available to the “Provider of OUTPUT
Service”.
 Thus bare liability to pay service tax as recipient of
service does not entitle one to be eligible to
CENVAT credit.
 But credit not available unless “input”, Capital
Goods” or “Input service” has been used for
provision of output service.
 Tax deposited under reverse charge mechanism can
be claimed as credit where applicable.
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6. Who is eligible to credit
effective 1-07-2012
With introduction of negative list Cenvat Credit
Rules define “Output Service” as:
“output service” means any service provided by a
provider of service located in the taxable territory
but shall not include a service,1. specified in section 66D (Negative List) of the
Finance Act; or
2. where the whole of service tax is liable to be
paid by the recipient of service.
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7. Who is eligible to credit
effective 1-07-2012
Thus credit is available only to the Output service
provider and that too only if he is in taxable
territory, the services provided are not in negative
list and 100% reverse charge is not applicable on
the respective output services.
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8. What is available as credit
 Basic Excise Duty (Except on Specified goods taxed
@1% ad valorem)
 Special and additional excise duty in specified cases
 service tax
 Education Cess & SHE
paid on:
– Inputs
– Capital Goods AND
– Input Services
Received by the provider of output service
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9. What are inputs
For the purpose of an Output service provider
inputs are:
– All goods used for providing output service.
– The definition is specific and crisp. There would
be goods which are used by the service provider
but use of such goods would not be specifically
in providing output service.
– In exclusionary clause certain goods are not
eligible as inputs:
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10. What are not inputs
1. LDO, HSD, Petrol,
2. any goods used for
a) construction or execution of works contract of a
building or a civil structure or a part thereof; or
b) laying of foundation or making of structures for
support of capital goods,
except for the provision of service portion in the
execution of a works contract or construction
service as listed under clause (b) of section 66E of
the Act; (Declared Services)
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11. What are not inputs
Thus works contract service and construction
service providers would be eligible to claim credit
for inputs used for rendering of service.
There are nine declared services and only two are
eligible for credit of inputs on construction related
activity.
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12. What are not inputs
• Nine declared services.
a) renting of immovable property;
b) construction of a complex, building, civil structure or a part thereof, including
a complex or building intended for sale to a buyer, wholly or partly, except
where the entire consideration is received after issuance of completioncertificate by the competent authority.
c)
temporary transfer or permitting the use or enjoyment of any intellectual
property right;
d) development, design, programming, customization, adaptation, upgradation,
enhancement, implementation of information technology software;
e) agreeing to the obligation to refrain from an act, or to tolerate an act or a
situation, or to do an act;
f)
transfer of goods by way of hiring, leasing, licensing or in any such manner
without transfer of right to use such goods;
g)
activities in relation to delivery of goods on hire purchase or any system of
payment by installments;
h)
service portion in the execution of a works contract;
i)
service portion in an activity wherein goods, being food or any other article of
human consumption or any drink (whether or not intoxicating) is supplied in
any manner as a part of the activity.
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13. What are not inputs
3. Motor Vehicles
Though credit in specified situations is available in
category of capital goods. No credit shall however be
available for Motor Vehicles in the category of inputs.
4. any goods, such as food items, goods used in a
guesthouse, residential colony, club or a recreation
facility and clinical establishment, when such goods are
used primarily for personal use or consumption of any
employee;
The term “such as” indicates the vast application of this
definition. This list can be really large.
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14. Capital Goods
Following items are eligible for CENVAT credit as
“Capital goods" if they are used for providing output
service:(A)(i)
all
goods
falling
under
Chapter
82
(Tools, Implements, Cutlery) , Chapter 84 (Nuclear
Reactors, Boilers, Machinery etc.), Chapter 85(Electrical
Mach. Sound Recorders, etc.), Chapter 90
(Optical, Photographic, Medical, Surgical apparatus
etc.), heading No. 6805 grinding wheels and the
like, and parts thereof falling under heading 6804 of the
First Schedule to the Excise Tariff Act;
(ii) pollution control equipment;
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15. (iii)components, spares and accessories of the above;
(irrespective of the entry they fall in. Components are
revenue expense in books but are eligible in capital
goods category) (Components / spares of other capital
goods mentioned in iv to vii below are not eligible and
there is no logical answer to exclude them. However
spares in appropriate cases may be eligible as inputs)
(iv) moulds and dies, jigs and fixtures;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof; and
(vii) storage tank,
(viii) motor vehicles other than those falling under tariff
headings 8702, 8703, 8704, 8711 and their chassis, but
including dumpers and tippers
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16. Tariff heading 8702 /8703 /8704 /8711 apply to all
passenger cars and motor bikes. Thus motor
vehicles falling in other than the stated category
shall be eligible as capital goods if they are used for
providing output service. Dumpers and Tippers shall
be capital goods for all categories of output service
providers.
Motor vehicles which are excluded from capital
goods as above have been separately allowed as
capital goods as per following provision:
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17. B. motor vehicle designed for transportation of goods
including their chassis registered in the name of the service
provider, when used forii. providing an output service of renting of such motor
vehicle; or
iii. transportation of inputs and capital goods used for
providing an output service; or
iv. providing an output service of courier agency
C. motor vehicle designed to carry passengers including their
chassis, registered in the name of the provider of
service, when used for providing output service ofii. transportation of passengers; or
iii. renting of such motor vehicle; or
iv. imparting motor driving skills
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18. Thus following conditions must cumulatively be
satisfied:
1. Must satisfy definition of motor vehicle as per
Motor Vehicles Act 1988.
2. Must be registered in the name of provider of output
service
3. Must be used for providing specified services. Use of
vehicle for any other purpose will deny eligibility.
4. Components and accessories are also treated as
eligible capital goods.
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19. What is input service
The definition has three parts:
1. Specific
2. Inclusive
3. Prohibitive
In specific part: “Input service” means any service used by
provider of output service for providing an output service.
In other words, service not used for providing output is not
eligible for credit. Thus there would be services used by
service provider but not all of them are used for providing
output service. Some such services are eligible to credit in
the inclusive part :
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20. What is input service
1.
2.
3.
4.
5.
6.
7.
8.
Inclusive Part:
Services used in relation to modernization, (setting
up is excluded w.e.f. 1-4-11) renovation or repairs
of a factory, premises of provider of output service
or an office relating to such factory or premises,
Advertisement or sales promotion,
Market Research,
Procurement of inputs,
Accounting,
Auditing,
Financing,
Recruitment
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21. What is input service
9. Quality control,
10. Coaching and training,
11. Computer networking
12. Credit rating,
13. Share registry
14. Security,
15. Business Exhibition
16. Legal Service
17. Inward transportation of inputs or capital goods
Item 5-14 were illustrations of “activities relating to
business- such as”. This phrase was replaced by
specific services thereby narrowing the scope of
input service.
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22. What is input service
1.
2.
3.
4.
5.
6.
7.
Service used for providing an output service
restricts the input service to direct inputs. The list of
indirect inputs as suggested in inclusive part has
been narrowed down. Thus many services would
apparently not form part of this list and may thus
be not eligible for credit:
Telecommunication Services
Management Consultancy
Office Maintenance / facility management
Repair & Maintenance of office equipment (AMC)
Hiring of equipment
Insurance
Event Management
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23. What is NOT input service
Prohibitory Part:
1. Construction related specified services when
used under specified circumstances.
2. Motor Vehicle related specified services except
under specified circumstances.
3. Services related to personal use or consumption
by employees under all circumstances.
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24. What is NOT input service
Construction related specified services
Service portion in the execution of a works
contract and construction services including
service listed under clause (b) of section 66E
of the Finance Act (hereinafter referred as
specified services) in so far as they are used
for –
a) construction or execution of works contract of a
building or a civil structure or a part thereof; or
b) laying of foundation or making of structures for
support of capital goods,
except for the provision of one or more of the
specified services
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25. What is NOT input service
Motor Vehicle related specified services
Services provided by way of renting of a motor vehicle,
in so far as they relate to a motor vehicle which is not a
capital goods; or
Service of general insurance business, servicing, repair
and maintenance , in so far as they relate to a motor
vehicle which is not a capital goods, except when used
by –
a) a manufacturer of a motor vehicle in respect of a
motor vehicle manufactured by such person ; or
b) an insurance company in respect of a motor vehicle
insured or reinsured by such person; or
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26. What is NOT input service
Employees personal use / consumption
Such as those provided in relation to:
1. Outdoor Catering
2. Beauty Treatment
3. Health Services
4. Cosmetic & Plastic Surgery
5. membership of a club
6. Health Fitness Centre
7. Life Insurance, Health Insurance
8. Travel benefits extended to employees on vacation such
as Leave or Home Travel Concession
Whenever used primarily for personal use or consumption
of any employee. List is not exhaustive.
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27. Restrictions on Input Credit
(a) CENVAT credit is not allowed on such quantity of inputs or
input services which are used in the manufacture of
exempted goods or provision of exempted services except
in the manner specified.
Utilization of CENVAT Credit on capital goods for payment of
service tax under reverse charge - Demand of service tax on
Intellectual Property Rights Service - Assessee discharged
service tax liability by paying major portion of service tax by
availing CENVAT Credit - Whether Cenvat credit can be
utilized for payment of service tax on 'Intellectual Property
Rights Service' received by them or not - Held that:according to Rule 3(4)(e) of Cenvat Credit
Rules, 2004, Cenvat credit may be utilized for payment of
service tax on any output service.
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28. Restrictions on Input Credit
According to provisions of Section 66A(1) of the Finance
Act, 1994, for all purpose, when demand are made under
Section 66A, the service received has to be treated as
'output service'.
Restriction applies for availing credit of duty only in respect
of excise duty paid on input or service tax paid on any input
services and not capital goods. In such a situation, the
appellant has made out prima facie case in their favour for
correctness of payment made by them. However, it seen
that payment was made after two years from the receipt of
services and therefore, the appellant is liable to pay
interest - Stay granted partly. MLR MOTORS LTD VERSUS
CCE, HYDERABAD (2013 (11) TMI 769 - CESTAT
BANGALORE)
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29. Restrictions on Input Credit
(b) No CENVAT credit is allowed on capital goods which are
used exclusively in the manufacture of exempted goods or
in providing exempted services, other than the final
products which are exempt under SSI exemption scheme
under central excise.
(c) No CENVAT credit is allowed on inputs/capital goods/input
services to a service provider who has opted for threshold
exemption scheme (Rs.10 lakhs)
(d) CENVAT credit on capital goods is not allowed in respect of
that part of value of capital goods which represents the
amount of duties/taxes on such capital goods which the
manufacturer of final products or service provider claims as
depreciation under Section 32 of Income Tax Act, 1961.
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30. Restrictions on Input Credit
(e) In cases where deduction of value of goods sold/used is
claimed by the service provider under Notification No.
12/2003, credit of excise duty paid on inputs is not allowed.
However, credit of service tax paid on inputs services and
excise duty paid on capital goods is allowed.
(f) In cases where under Notification No. 26/2012– ST dated
20-06-2012 abatements have been claimed by specified
service provider, input credit can be availed subject only to
restrictions provided therein.
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31. Sl.
No.
1
Description of
taxable
service
TAXABLE
PERCENTAGE
Services in relation to
financial leasing including
hire purchase (exclude
principal repayment)
Transport of goods by rail
10
3
Transport of passengers,
with or without accompanied
belongings by rail
30
4
Bundled service by way of
supply of food or any other
article of human
consumption or any drink, in
a premises (including hotel,
convention center, club,
pandal, shamiana or any
other place, specially
arranged for organizing a
function) together with
renting of such premises
70
2
30
Conditions
Input
Input
Service
Capital
Goods
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
CENVAT of Yes
any inputs
eligible u/
Chap. 1 to
22 of
Central
Excise
Tariff Act,
not taken
Yes

32. Input
5 Transport of passengers
by air, with or without
accompanied belongings
6 Renting of hotels, inns,
guest houses, clubs,
campsites or other
commercial places
meant for residential or
lodging purposes.
7 Services of goods
transport agency in
relation to
transportation of goods.
8 Services provided in
relation to chit
40
9 Renting of any motor
vehicle designed to
carry passengers
40
60
25
70
Input
Service
Capital
Goods
No
Yes
No
No
Yes
No
No
No
No
No
No
No
No
No
No

33. Input
10
Transport of goods in
a vessel
Input
Service
Capital
Goods
No
No
No
25
No
No
No
10
No
No
No
40
No
No
No
50
11 Services by a tour
operator in relation to,(i) a package tour
(ii) a tour, if the tour
operator is providing
services solely of
arranging or booking
accommodation for any
person in relation to a
tour
Any service other than
specified in (i) & (ii)
above

34. Input
12.
Construction of a
complex, building, civil
structure or a part
thereof, intended for a
sale to a buyer, wholly
or partly except where
entire consideration is
received after issuance
of completion certificate
by the competent
authority:
i)
For residential unit
having carpet area
upto 2000 sq ft. and
where amount
charged is less than
Rs. One crore.
ii) For other than (i)
above
No
Input
Service
Capital
Goods
Yes
Yes
The value of land is
included in the amount
charged from the service
receiver.
25
30

35. IMPORTANCE OF A DUTY DOCUMENT
Taxability of services provided to customers situated abroad:
SGS India Pvt. Ltd. vs. CST, Mumbai reported in [2011 (2) TMI 54 - CESTAT
MUMBAI] - The appellant is paying service tax from Mumbai
main office in respect of all the branch offices
and, therefore, we do not find anything wrong in taking credit
just because the invoices are in the name of branch offices.
The appeal on this count is allowed - in favour of assessee.
• If broad requirements of law are duly complied with, reliance
can be placed on the principle laid down in Mangalore Chemicals &
Fertilizers Ltd vs. Dy. Commissioner (1991) 55 ELT 437 (SC) viz.:
There is a distinction between the procedural condition of a
technical nature and substantive condition and that non –
observance of the former is condonable while that of a latter
was not condonable”.
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36. When can credit be taken
INPUTS: When inputs are delivered to output service
provider. He must maintain documentary evidence of
delivery and location of inputs. Payment to supplier is not
important.
CAPITAL GOODS: When CG are delivered to output service
provider. He must maintain documentary evidence of
delivery and location. Hire Purchase / finance options do
not disturb the claim. Payment to supplier is not important.
INPUT SERVICE:
1. Where Reverse Charge is applicable: On or after payment is
made to the supplier.
2. Where Reverse Charge is not applicable: On receipt of
invoice. Payment to supplier must be made in 3 months.
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37. When can credit be taken
 In case of non payment the credit shall be
reversed. Reversal of credit shall take place
before 5th of the following month and before
March 31st in case of end of financial year. [subrule (7) of Rule 4].
 Prior to 1.4.2011 credit was available on payment
only. The shift to system of accrual is in line with
GST and is welcome. However the restriction of 3
months for payment as a condition to avail credit
makes it mandatory to monitor the entire
payment data. This shall be a tedious manual
exercise.
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38. When can credit be taken
 Credit shall be available again on actual payment
to the vendor.
 Professionals permitted to pay tax on cash basis
also eligible to follow these provisions in respect
of CENVAT credit.
 No specific provision covering part payment of
invoices with in three months. Logically, credit
proportionate to unpaid amount be reversed.
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39. QUANTUM OF CREDIT AVAILABLE
QUANTUM OF CREDIT FOR CAPITAL GOODS
50% in the financial year of receipt of goods. Balance 50% in
any subsequent FY.
Depreciation should not be claimed on the duty portion of
the capital goods.
Capital goods used exclusively for exempted activity do not
qualify for credit.
QUANTUM OF CREDIT FOR INPUTS AND INPUT SERIVCES
For Inputs and Input Services full credit is available at once.
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40. REMOVAL W/O OF INPUTS, CAPITAL GOODS
BEFORE / DURING USE
1. Remove as such without use: Credit to be reversed.
Non-use of inputs– Inputs procured and credit taken –sold as
such also – CENVAT credit sought to be denied as goods not
used in manufacture – Sale price higher than Purchase Price –
Duty paid at clearance amounts to reversal of credit –credit
availed on inputs to consider utilized - credit reversal not
required [Vickers Systems International Ltd vs. CCE (2008) 10
STR 378 (Tri – Mumbai)].
2. Write off without use: Credit to be reversed.
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41. REMOVAL W/O OF INPUTS, CAPITAL GOODS
BEFORE / DURING USE
3. Removal for Job Work: Is permitted without payment /
credit reversal provided goods are returned back after job
work with in 180 days.
4. Removal for use: Is permitted without payment / credit
reversal. Inputs and capital goods can be removed for use
without restriction of 180 days.
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42. REMOVAL W/O OF INPUTS CAPITAL GOODS
REMOVAL OR Write Off AFTER USE
1. For inputs removal as scrap after use there is no reversal
provision.
2. In case of capital goods the law assumes a life of 5 years for
computer & peripherals and 10 years for other capital
goods. If capital goods are disposed of prior to the
prescribed life period a portion of credit availed depending
on the actual period of holding shall be sustained and
balance of credit shall be reversed. For computers and
peripherals it is 10%, 8%, 5% and 1% per quarter for I, II, III
and IV&V years respectively. For other assets it is 2.5% for
each quarter.
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43. Outdoor Catering to provide meals to
employees at subsidized rates
• CCE, Mumbai-V Vs. GTC Industries Ltd. 2008 (12) STR 468 :
Credit was admissible even when a part of the expenditure
incurred was recovered from the employees. The tax paid
formed part of expenditure towards manufacture.
• The situation changes with amendments disallowing
personal nature expenses.
Group Medical Policy for Workmen
CCE &C Aurangabad Vs. Endurance Systems (P) Ltd. , cenvat
credit of service tax paid on group medical policy allowable.
The situation changes with amendments disallowing
personal nature expenses.
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44. Mobile Phone and Landline phone at
Directors’ / officials’ residence
Keltech Energies Ltd. Vs. CCE, Mangalore
Where the bills were paid by the company as
expenditure, the same was eligible to be treated as input
service.
CCE Vs. Excel Crop Care Ltd. 2008(12) STR 436 (Guj)
Revenue’s appeal that credit for service tax paid on
telephone bill could not be allowed if the phone was not
installed at the factory premises, was dismissed.
Telephone Expenses no more allowable to credit unless
the service has been used for providing output service.
Besides, now there are specific provisions for disallowance
of credit relating to personal expenses of employees. The
department may find it handy to raise dispute on
unavoidable personal element involved.
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45. Inclusive and broad definition
• The spirit of the service tax provisions adopting an
inclusive and broad definition has been killed by
recent amendments making exhaustive list of
eligible services for credit and disallowing credit on
personal expenses of employees. This shall result
in cascading impact on taxes.
• Credits, hitherto allowable due to interpretations
by the courts in India shall now be restricted:
• Repair of employees residences.
• Rent a cab for ferrying employees from
residence to office and back.
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46. Utilization / Application of
credit
 Once accumulated in CENVAT account the credit becomes a
common kitty and loses its identification as CG /Inputs/
Input Service. Utilization amounts to drawl from the pot.
 The CENVAT credit showing on the last day of the month or
quarter, as the case may be shall only be available for drawl
[sub-rule (4) of Rule 3].
 However for delayed payment of arrears of tax on demand
raised by the department the adjustment can be made out
of the balance standing on the day of adjustment.
 The credit can not be used to discharge liability under
reverse charge.
 Refund of unused credit can be allowable to exporters.
Excess credit not likely to be consumed in future be better
written off.
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47. Utilization / Application of
credit
Reversal / utilization of Credit
The CENVAT credit may be utilized for payment of• An amount equal to CENVAT credit taken on inputs
if such inputs are removed as such or
• an amount equal to the CENVAT credit taken on
capital goods if such capital goods are removed as
such or
• service tax on any output service
• Amount payable when inputs / capital goods sent
for job work are not received back in 180 days.
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48. Credit for inputs used in exempt
services
Exempted Services (Rule 2(e) of CCR2004: means
•
•
•
•
•
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Taxable services which are exempt from whole of
service tax leviable thereon
Services on which no service tax is leviable u/s 66B of
the Finance Act
Taxable services whose part value is exempted on
condition that no credit for input / input services shall
be taken
but shall not include a service which is exported in
terms of rule 6A of the Service Tax Rules, 1994
Trading being service not taxable u/s 66B shall be
considered as exempt service.
48

49. Common inputs: Taxable and
Exempt services
Credit for inputs or input services used exclusively
for exempt services not allowable. Same way credit
for inputs or input services used exclusively for
taxable services should be allowable in full.
Prior to April 1,2008 credit in respect of common
inputs was restricted to 20% of output tax and
balance was eligible to be carried forward
indefinitely. Though the brought forward balance
was eligible for credit but further availability of
credit got restricted.
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50. Common inputs: Maintenance of
separate accounts
Where a manufacturer or a service provider avails
CANVAT credit in respect of inputs / input services
used for both taxable as well as exempt goods /
services he must maintain separate books of
accounts in prescribed manner.
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51. Common inputs: Maintenance of
separate accounts
Separate accounts shall be maintained for:
(a) the receipt, consumption and inventory of inputs used(i) in or in relation to the manufacture of exempted goods;
(ii) in or in relation to the manufacture of dutiable final
products excluding exempted goods;
(iii) for the provision of exempted services;
(iv) for the provision of output services excluding
exempted services; and
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52. Common inputs: Maintenance of
separate accounts
(b) the receipt and use of input services(i) in or in relation to the manufacture of exempted
goods and their clearance upto the place of
removal;
(ii) in or in relation to the manufacture of dutiable
final products, excluding exempted goods, and their
clearance upto the place of removal;
(iii) for the provision of exempted services;
and
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53. Common inputs: Maintenance of
separate accounts
(iv) for the provision of output services excluding
exempted services, and shall take CENVAT credit
only on inputs under sub-clauses (ii) and (iv) of
clause (a) and input services under sub-clauses (ii)
and (iv) of clause (b).]
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54. Common inputs: Maintenance of
separate accounts
• Major changes in the spirit of section 6(2) incorporated
effective April 1, 2011 thereby giving an option to maintain
separate accounts only of inputs and claiming proportionate
option in respect of input services.
• The amended provisions are a wider version of earlier
provisions requiring detailed accounting in respect of
“receipt, consumption & inventory” of inputs and “receipts
and use” of input services attributable to various taxable
and exempt permutations.
• The changes however fail to address treatment in respect of
common expenses such as auditing, financing, interior
decoration, telephone etc. while maintaining separate
accounts.
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55. OPTION OF NOT MAINTAINING SEPARATE
ACCOUNTS
The manufacturer of goods or the provider of
output service, opting not to maintain separate
accounts, shall follow any one of the following
options, as applicable to him, namely:(i) pay six per cent. of value of the exempted goods
and exempted services; or
(ii) Apply for proportionate option u/r 6(2) (3A); or
(iii) Apply combination of “separate accounts” for
inputs and “proportionate option” for input
services.
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56. •
•
•
•
Pay 6% of value of exempted goods
/ services
Value of exempted goods shall be the gross amount
charged.
Where part value is exempt on condition that CENVAT
shall not be claimed, the said exempt portion shall be
the relevant portion.
Different options for different exempt goods or
exempt services can not be availed.
Any option once exercised shall apply to the
remaining part of the year. This implies that switching
from separate accounts to one of the options is
possible during the year.
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57. Withdrawal of circular : Unjust
Enrichment
Possible to charge Service Tax from
Client
Where option to pay 6% on exempted services is
exercised, the service provider can charge tax on
the client, mentioning specifically “amount paid
under rule 6 of the cenvat credit rules.”
Provisions of unjust enrichment shall not apply.
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58. Procedure to exercise
proportionate option
Intimate to the Superintendent the intention to
exercise this option along with other details and
balance of cenvat credit unused, description of
dutiable and exempted goods and services.
Pay provisionally, every month, the cenvat credit
attributable to input services used in or in relation
to manufacture of exempted goods or provision of
exempted services. This shall be calculated with a
formula E/F*G where G is the total of cenvat credit
on input services taken during the month and E and
F are calculated as under:
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59. Procedure to exercise
proportionate option
E is the sum total of the value of exempted services
provided and exempted goods manufactured and
removed during the preceding financial year
and F is the sum total of the value of taxable and
exempted services provided and the dutiable and
exempt goods manufactured and removed during
the preceding financial year.
Similar formula shall apply separately in respect of
inputs. However CENVAT credit relating to inputs
used for manufacture of exempted goods has to be
excluded from the total value of CENVAT on Inputs
taken during the month. Accordingly total value of
exempt goods manufactured is also not considered
as part of the denominator.
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60. Proportionate option
Trading services value shall be included in E & F for
this purpose.
Trading service shall be valued as the difference
between the sale price and COGS (as per generally
accepted accounting principles, but excluding
expenses towards purchase) subject to a minimum
of 10% of COGS.
Similarly value of services covered by composition
scheme shall also be included in E & F. The
corresponding value shall be determined based on
formula: Tax amount (under composition scheme) /
rate of service tax (under composition scheme)*
present rate (12%)
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61. Proportionate option
 In case of trading in securities the difference between sale
and purchase price of securities traded or1% of purchase
price whichever is more.
 Value of service by way of extending loans, deposits where
consideration is interest, shall not be included as exempt
service value.
 Following two services can not any of the options and shall
reverse credit on adhoc basis:
Banking and financial service provider shall reverse 50%
of credit every month.
Provider of Life Insurance / Management of ULIP shall
reverse 20% of credit every month.
 Service provided to SEZ – No reversal required.
 Exporters who do not get full money in foreign exchange
would not get covered for this purpose.
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62. Proportionate option
Payment amounts to debit to CENVAT credit
account or otherwise on or before 5th of
following month / quarter, except March
where March 31st shall be the last date.
The option of payment or reversal of credit
can be chosen by the Assessee and shall not
be thrust upon him.
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63. Proportionate option
On completion of year the differential
between the provisional and actual figures of
the whole year shall be paid (by 30th June)
along with interest at 24%. Where the full
year yields a lesser figure, the amount excess
paid can be adjusted as part of cenvat credit
under intimation to the Superintendent in 15
days.
For this purpose export of service shall be
treated as taxable service and shall form part
of denominator.
Where capital goods are used partly for
taxable purpose full credit shall be allowable.
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64. Input Service Distributor
"input service distributor" means an office of the
manufacturer or producer of final products or
provider of output service, which receives
invoices issued under rule 4A of the Service Tax
Rules, 1994 towards purchases of input services
and issues invoice, bill or, as the case may
be, challan for the purposes of distributing the
credit of service tax paid on the said services to
such manufacturer or producer or provider, as the
case may be;

65. Input Service Distributor
The input service distributor may distribute the CENVAT
credit subject to the following conditions:
a) the credit distributed against an invoice does not exceed
the amount of service tax paid thereon;
b) credit of service tax attributable to service used in a unit
exclusively engaged in manufacture of exempted goods or
providing of exempted services shall not be distributed;
c) credit of service tax attributable to service used wholly in a
unit shall be distributed only to that unit; and
d) credit of service tax attributable to service used in more
than one unit shall be distributed pro rata on the basis of
the turnover during the relevant period of the concerned
unit to the sum total of the turnover of all the units to
which the service relates during the same period.

66. Input Service Distributor
Explanation 3.
The relevant period shall be the month previous to the month
during which the CENVAT credit is distributed.
a) In case if any of its unit pays tax or duty on quarterly
basis then the relevant period shall be the quarter
previous to the quarter during which the CENVAT credit is
distributed.
b) In case of an assessee who does not have any total
turnover in the said period, the input service distributor
shall distribute any credit only after the end of such
relevant period wherein the total turnover of its units is
available.

67. •
•
•
•
PARTNER S REMUNERATION WHETHER TAXABLE UNDER
SERVICE TAX
In the negative list all services, other than services specified in the
negative list would be taxed under section 66B. Service‘ means
and includes - any activity - for consideration - carried out by a
person for another - and includes a declared service - But does
not include MAGIC
Two Persons Must
The phrase 'provided by one person to another' signifies that
services provided by a person to self are outside the ambit of
taxable service. Example of such service would include a service
provided by one branch of a company to another or to its head
office or vice-versa.
As service is an activity involving two persons- one as service
provider and other as service receiver, explanation 2 to the
definition clarifies that any unincorporated association or body or
persons and its members, both will be treated as distinct persons.

68. PARTNER S REMUNERATION WHETHER TAXABLE UNDER SERVICE TAX
• Thus, if a person who is member of body of persons or association
which is not incorporated or registered, provides service to such
body or association, it will be considered as a service. In an
incorporated body the distinct identity of the member is already
acknowledged by law. A partner is not an employee of a firm.
• The remuneration paid to partners is a part of profit which is given
for extra human efforts. Remuneration is given to working
partners only and not to dormant partners because they provide
their services to the business and in return they receive extra
profit in form of remuneration.
• It may be considered a case of different form of distribution of
profit. It is also a transaction in money and, hence may not be
covered under the definition of services, because the definition of
service u/s 65B (44)clearly excludes the transaction in money from
the scope of service.

69. PLACE OF PROVISION OF SERVICE
(POPS)

70. Place of Provision of Service Rules, 2012.
• Section 66B: There shall be levied a tax at the rate of
twelve per cent on the value of all services, other than
those specified in the negative list, provided or agreed to
be provided in the taxable territory by one person to
another.
• Purpose is to identify taxing jurisdiction for a service;
• In earlier regime focus was to determine taxability in case
of exports and imports only. Present rules to replace
existing Export and Import Rules as well as to define local
jurisdiction;
• Meant for cross border services, services to J & K, service
providers operating from multiple locations, determining
services wholly consumed in SEZ and A PRECURSOR TO GST.

71. POPS. Important Terms:
• Taxable Territory : Article 1 of the constitution, territorial waters, sea
bed, continental shelf, sub-soil, air space installations, structures, vessels
in the relevant zone..
• Location of Service Provider or Receiver
• Business Establishment (Place Where essential decisions concerning
the general management are adopted and functions of its central
administration are carried out. A service provider or receiver can have
only one business establishment )
• Fixed Establishment (Place other than Business Establishment which
has permanent presence of human and technical resources to provide or
receive service)
• Usual Place of Residence ( Body Corporate : place where
incorporated, Individual : place where he spends most of his time for the
period in question or where he lives with his family and is in full time
employment. An individual cannot have more than one place of usual
residence.)

72. Importance of Location
• Taxation of service is based on the place of provision of
service.
• Place of provision can either of the two:
– Location of the provider at a given point of time.
– Location of the receiver at a given point of time.
• The person paying for service may not necessarily be the
receiver or provider of service. It is the obligation to pay
that matters.

73. PPS Rules, 2012
Location of Service Provider or Recipient means:A. Premises for which registration is obtained in case of
single registration whether centralized or otherwise;
B. If ‘A’ is not applicable
– Location of business establishment;
– If services are provided/received from a place other
than business establishment, location of such fixed
establishment;
– When services are provided/received from more
than one establishment – establishment most
directly concerned with use or provision of service;
– In absence of all above, usual place of residence of
provider / recipient;

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75. Rule 3- Default Rule
• Place of provision - service is deemed to be
provided where receiver is located;
• Default rule applies when none of later rules
apply.

76. Rule 3- Default Rule
Taxable Territory
‘A’
Non- Taxable Territory
Not Taxable
Service Provider
‘Y’
Service Receiver
Taxable for A
‘B’
Service Receiver
Taxable for B
‘X’
Service Provider

77. Person paying is different from person
receiving – Global Agreements
• ‘A’ as agent makes payment on behalf of ‘B’. ‘B’
is the receiver of service.
• Head office paying on behalf of branches, HO is
the receiver.
• Global Agreements covering different
countries..

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80. Rule 4- Performance based services
Place of provision is the location where services are
actually performed; Examples:
• services in respect of goods to be physically made
available by receiver (repair, storage / warehousing,
technical testing, dry-cleaning, cargo handling etc).
Market research reports, CA reports do not fall here.
• Indian engineers going to US to repair a ship not
taxable in India.
• Foreign engineers coming to India to repair a ship –
taxable in India.
• Services provided from a remote location by electronic
means – taxable where goods located at that time.

81. Rule 4- Performance based services
• Services provided in conjunction with supply of goods
under
another
contract
(erection, commissioning, AMC bundled with sale of
goods)
• Services provided predominantly in physical presence
of receiver (photography, Cosmetic / plastic
surgery, personal security, health fitness, classroom
coaching, internet cafe)
• These may be rendered in a clinic, at the place of the
recipient or on board a conveyance or a third place.
• Person liable to pay may be different from the actual
recipient. Location of actual individual recipient is
important.

82. Rule 5-Services relating to immovable property
• Place of provision - where immovable property is located.
• Applicable for services directly connected with immovable
property.
Examples of services covered
• Services in course of
construction, alteration, repair, maintenance etc;
• Renting of immovable property;
• Services of real estate agents, architects, engineers etc
relating to land, building or civil engineering works;
• Services connected with oil / gas / mineral exploration;
• surveying; property management services, hotel
accommodation

83. Rule 5-Services relating to immovable property
Criteria to determine ‘Direct Connection’
• Services performed or agreed to be performed on
immovable property (maintenance) or property to come in
to existence (Construction)
• Direct object of service is immovable property (which
enhances value of property, affects nature of
property, relates to development of property )
• Purpose of service is transfer or conveyance (as real estate
agent service, lease, legal service to owner or beneficiary as
a result of will or testament) , determination of title to
property.

84. Rule 5-Services relating to immovable property
• Examples of services not directly related to immovable
property
– advice or information as to land prices in or around an
area not being a specific site.
– General feasibility studies on investment potential of
area not being a specific site.
– Repair of movable machinery
– Tax assessment based on figures provided by the
owners.

85. Rule 6- Service relating to Events
• Place of provision -Place where event is actually held.
• Covers admission to events , organizing events and
ancillary services
Examples
• Conventions
• Conferences
• Exhibitions
• Fairs
• Seminar
• Workshops , wedding , sports etc.

86. Rules 7
Rule 7- Part performance of service at different locations
• Where any service stated in 4, 5, 6 is provided at more than
one locations including a location in taxable territory and
one or more location is outside taxable territory The place of provision shall be the location in taxable
territory where greatest proportion of service is provided.
Example:
• Technical inspection and certification of a product by
carrying out testing at two locations in India and one
outside India. Taxable in the Indian state where a higher
stake is involved.

87. Rules 8
Rule 8 – where provider and recipient is in taxable territory Location of Receiver’.
• Where provider and recipient are both in taxable territory
even when the actual provision takes place outside taxable
territory the taxation shall arise in India.
Example
• Indian plane needs repair while in US. Indian maintenance
agency sends its engineers to US for repairs or hires
engineers in US to repair the plane.
• This transaction will be taxable in India superseding earlier
clauses.

88. Rules 9
Rule 9- specified services –location of service provider;
• Banking service (to account holders). Thus only account
related services such as opening, cheque book,
statement, credit card, lockers etc. would be identified
on this basis. Services such as leasing, issue
management, foreign exchange, asset management,
advisory etc. would not be covered even if provided to
account holder.
• Telecommunication service (to subscribers)

89. Rules 9
Rule 9- specified services –location of service provider;
• Online information and database access or retrieval; A
server in India providing such service to a US user will
attract tax in India without it being treated as export. A
server in US providing service to a Indian consumer
would not attract tax even in the import of service
category. E-commerce activity would not fall in this
criteria.

90. Rules 9
Rule 9- specified services –location of service provider;
• Intermediary Services; Intermediary is a broker or a agent or
any other person, by whatever name called, who arranges or
facilitates a provision of service between two persons but
does not include a person who provides the main service on
his behalf. Thus intermediary for supply of goods is not
covered here. Similarly an agent who himself provides main
service is not an intermediary. Thus agent can not alter the
nature or value of the main service.
• Hiring of means of transport up to a month. Means can be
sea, air or road. It may cover goods or passengers. Location of
the means at the time of hiring is not relevant. Thus a vehicle
owned by an entity in India but located outside and used for
hiring for short durations would be taxable in India.

91. Rules 10
Rule 10- Transportation of goods other than by mail or
courier – place of destination of goods – except in GTA
by road where place of provision is location of person
liable to pay tax.
Thus in case of GTA, if goods are transported to J&K and
sender pays to transporter service tax will apply while if
recipient pays to transporter it would not apply.
Exports will become tax free.
Inwards transportation up to customs station by air or
sea is already part of negative list 66D(p)
Courier is door to door transportation of time sensitive
documents, goods, articles utilizing service of a person
to carry or accompany such articles..

92. Rules 11 & 12 & 14
• Rule 11 – Passenger transportation services – place where
passenger embarks on conveyance for continuous journey.
• Rule 12- services provided onboard conveyances –First
scheduled point of departure of conveyance for journey
Eg – on board service of provision of movies, music, games,
beauty treatment etc.
Rule 14- Order of application of Rules- where more than one
rule applies, rule that occurs later is relevant rule.

93. IMPORTS AND EXPORTS
• Under the new regime a service provided outside the taxable
territory is already not taxable. It may seem irrelevant to treat
it as export.
• Exports are zero rated and the entitlement to CENVAT is not
lost.

94. New Export Guidelines
• New Export provisions have been made. Export of services
shall now be governed by new provisions in the Service Tax
Rules 1994, namely Rule 6A. The essential requisites before a
service can be designated as export service are:
• It must be a service as defined under sub-section 44 of
section 65B
• It should be provided by a service provider located in the
taxable territory.
• It should be provided to a service receiver is located outside
India. Thus service provided to recipient in J&K may be
exempt but not export.

95. New Export Guidelines
• The service is not a service specified in the negative list
• The place of provision of the service is outside India
• The payment for such service is received by the service
provider in convertible foreign exchange.
• The service provider and service receiver are not merely
distinct establishments of same person.
• The answer to all questions above must be yes to avail the
status of export of service.

96. THANKS
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