CENVAT Credit of service tax paid on rent-a-cab service
Karnataka High Court in case of Commissioner of Central Excise, Bangalore-III v. Tata Auto Comp Systems Ltd. CEA No. 132 of 2009 April 11, 2011 has announced a really good decision by allowing credit of service tax paid on Rent-a-Cab service for transport of employees to and from factory as input service. The wordings of the judgement was as follows:
“The identical question of law came up for consideration before this Court in the case of CCE v. Stanzen Toyotetsu India (P.) Ltd.  32 STT 244 (Kar.). This Court took the view that the transportation/Rent-a-Cab service is provided by the assessee to their employees in order to reach their factory premises in time which has a direct bearing on manufacturing activity. In fact, the employee is also entitled to conveyance allowance which would form part of his condition of service. Therefore, by no stretch of imagination it can be construed as a welfare measure by denying the availment of Cenvat credit to the assessee for providing transportation facilities as a basic necessity which has a direct bearing on the manufacturing activity. While so holding the Court held that if the credit is availed by manufacturer then the question is what are the ingredients that are to be satisfied for availing such a credit. That the said service should have been utilized by the manufacturer directly or indirectly in or in relation to the manufacturer directly or indirectly in or in relation to the manufacturer of final products or used in relation to activities relating to business. If any of the test is satisfied then the service falls under input service and the manufacturer is eligible to avail Cenvat credit and the Service tax paid on such credit.”
Gone are those days!
“but excludes services,-
(A) ……………………………………………………………………… or
(B) specified in sub-clauses (d), (o), (zo) and (zzzzj) of clause (105) of section 65 of the Finance Act, in so far as they relate to a motor vehicle except when used for the provision of taxable services for which the credit on motor vehicle is available as capital goods;”
(A) ……………………………………………………………………… or
(B) specified in sub-clauses (o) and (zzzzj) of clause (105) of section 65 of the Finance Act, in so far as they relate to a motor vehicle which is not a capital goods;”
– However, credit is still available to those tax payers who can relate rent-a-cab service to a motor vehicle which is a capital goods for them. Who are such tax payers? They can be businessmen running business of renting of motor vehicle or transportation of passengers. Hence, credit is still available to these assesses for relating the input service for renting of motor vehicle or transportation of passengers business.
The motor vehicle should be registered in the name of service provider.
Can service providers providing rent-a-cab service but taking abatement while paying service tax on output services receive credit of rent-a-cab input service?
What are the action points required to be taken if credit of rent-a-cab service is already taken in accounts?
– If credit is received in accounts as CENVAT Credit Receivable (under Current Assets) related to service tax paid on reverse charge on rent-a-cab service, the same shall be reversed.
– It shall be booked as an expense.
Is there any interest payable on reversal basis?
No. Please refer to our article in this subject matter – https://aviratshiksha.wordpress.com/2013/04/01/interest-and-penalty-on-wrong-availment-taking-of-cenvat-credit/