In the recent Budget, the Cenvat Credit Rules have been amended, disallowing credit on service tax paid for construction of factory buildings. We already have a contract for construction of a factory that is going on, and we are making payments on the basis of milestone achievements. Can we take credit for payments that we make in March 2011?
The amendments to Cenvat Credit Rules that you have referred to (i.e., the change in the definition of input services) will come into effect from April 1, 2011. Therefore, till then, based on whatever payments you make for the relevant services, you can take Cenvat Credit of the tax component, as the Cenvat Credit Rules stand now.
We are running a pathological laboratory where we conduct various tests (like blood samples, etc.). We understand that we have to pay service tax after this year’s Budget. Can you please confirm this point?
The Finance Bill 2011 proposes to tax services provided or to be provided to any person by a clinical establishment or by a doctor, not being an employee of a clinical establishment, who provides services from such premises for diagnosis, treatment or care for illness, disease, injury or deformity, abnormality or pregnancy in any system of medicine. Any independent entity that carries out diagnosis of diseases through pathological, bacteriological, generic, radiological, chemical, biological investigations or other diagnostic or investigative services with the aid of laboratory or other medical equipment is also covered within the definition of ‘clinical establishment’. Therefore, your services will be taxed but only from a date to be notified if the Finance Bill is passed by Parliament and becomes Finance Act, 2011, without dropping or materially changing the relevant clauses.
We manufacture dutiable and exempted goods and take Cenvat Credit on common inputs. But, we do not maintain separate records and so pay five per cent of the value on the exempted goods at the time of clearance. After the Budget, our exempted goods have become liable to one per cent excise duty without Cenvat Credit, or five per cent duty with Cenvat Credit. Can we continue the present practice?
If you opt to pay five per cent tariff rate of duty on the goods that have now become dutiable, then all the goods you manufacture become dutiable goods and Cenvat Credit Rule 6 will not come into play. In that case, you can show the entire amount of five per cent as duty in your invoice and the buyer can take Credit of that duty. If you want to continue your practice, you must note that the Rules treat the one per cent duty goods as exempted goods.
If you take Credit on the common inputs, you still have to pay five per cent on clearance of the exempted goods but you have to show one per cent as duty and four per cent as amount paid under Rule 6(3) of Cenvat Credit Rules, and the buyer cannot take Credit of either the one per cent duty or the amount of four per cent.