Nut Crackers

Questions & Answers

Sampath Raghunathan

service tax

1. Whether Turnkey Projects can be subjected to service tax prior to 1.6.2007 and is it permissible to vivisect the contracts which are indivisible in nature. Please explain.

Ans. Recently, the Larger Bench of CESTAT in the case of Commissioner of Central Excise, Raipur vs. BSBK Pvt. Ltd. 2010 (18) STR 555 (Tri- Larger Bench) has held that the submission that turnkey contracts cannot be vivisected does not find legal support and the entire submission that severability of turnkey contract by 46th Constitutional Amendment has only permitted levy of sales tax on goods is misconceived. The Larger Bench has also held that introduction of Works Contract service w.e.f. 1.6.2007 has nothing to do with severance of the contract to segregate goods and services involved in turnkey contracts.

However, as observed by the Larger Bench, leviability of service tax on different elements of services depends on the facts and circumstances of the case and classification of respective services.

2. What is the rate of service tax to be applied in a case where on the date of payment of service tax there is an increase in the rate of tax. In other words whether rate of tax applicable as prevailing on the date of payment of service tax is to be applied or rate of tax as prevailing when the service was rendered is to be applied. Please explain.

Ans. The rate of service tax prevailing on the date of provision of Service has to be applied.

Proviso to Rule 6 (3) (1) of the Service Tax Rules, 1994 states that, "Provided further that notwithstanding the time of receipt of payment towards the value of services, no service tax shall be payable for the part or whole of the value of services, which is attributable to services provide during the period when such services were not taxable…."

This view is affirmed by Tribunal in the case of Reliance Industries Ltd. vs. CCE, Rajkot - 2008 (10) S.T.R. 243 (Tri. - Ahmd.)

3. An assessee, registered under STPI utilizes many services and pays service tax on such services. The same assessee has another division which utilizes certain input services for providing output service in domestic area. Both the divisions are in same building but in different floors. Both the floors are registered with Service Tax Department. In this situation can he utilize the service tax paid on input services utilized in STPI division against the service tax liability of output service provided from non-STPI division or he has to claim refund from the Department. Please explain.

Ans. In terms of Para 6.30 of the Handbook of Procedures of the current Import-Export Policy an individual enterprise operating both as a domestic unit as well as STPI Unit, should have distinct identity, but it is not necessary for it to be a separate legal entity. The said paragraph reads as under:

"Distinct Identity :

"If an industrial enterprise is operating both as a domestic unit as well as an EOU/EPZ/EHTP/STP unit, it shall have two distinct identities with separate accounts including separate bank accounts. It is, however, not necessary for it to be a separate legal entity, but it should be possible to distinguish the imports and exports or supplies effected by the EOU/EPZ/ EHTP/STP units from those made by the other units of the enterprise."

Thus, STPI and DTA units can be different divisions of a same legal entity. Service Tax laws are silent about registration or centralised registration where both STPI and DTA units functions as different divisions in same premises or where one of the different premises is an EOU.

We are of the view that both these divisions can function under a single registration for service tax purposes. The services availed for the STPI can be utilized for payment of service tax liability of non-STPI unit. (provided the services of STPI is otherwise a taxable service) Balance of unavailed credit can also be claimed as refund.

4. Whether an assessee is entitled for CENVAT credit on GTA service in a case where the value of freight is not included in the assessable value of goods manufactured and cleared from the factory by an assessee. Please clarify.

Ans. Presently the Cenvat Credit Rules has been amended to cover only transportation of goods only upto the place of removal under the definition of input services. Thus, there is no doubt about the availability of credit upto depot, which is ‘place of removal’.

The Larger Bench of the Tribunal in the case of ABB Limited (2009 (15) S.T.R. 23 (Tri. - LB) has observed that the term, ‘input service’ has to be interpreted in the light of the requirements of business and it cannot be read restrictively so as to confine only upto the factory or upto the depot of manufacturer and that there is no requirement that cost of freight to be included in transaction value of manufactured goods for admissibility of credit. However, this decision is under challenge by the Department and the appeal by the Department has been admitted by the High Court. Stay also has been granted. A final decision in this matter is awaited.

5. Whether components not falling under the Chapter specified in the definition of the Capital Goods qualify for CENVAT credit of duty paid. Is it necessary that the components should also fall under the same Chapter heading of the Capital Goods specified therein for the purpose of being eligible to CENVAT credit. Please explain.

Ans. Rule 2 (a) of the Cenvat Credit Rules, 2004 define "Capital Goods", as under:

(a) "capital goods" means:-

(A) the following goods, namely:-

(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90 [heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804] of the First Schedule of the Excise Tariff Act;

(ii) pollution control equipment;

(iii) components, spares and accessories of the goods specified at (i) and (ii)

………………."

The components, spares and accessories may fall under any Chapter but they should be components, spares and accessories of the goods specified in Clause (a)(i) applicability of any exemption notification.