The definition of ‘input service' has been amended to provide that ‘clearance of final products up to the place of removal' will alone be considered as input service. It has also substituted the words ‘from the place of removal', used earlier, by ‘up to the place of removal'. This amendment may avoid disputes in future relating to availment of credits on outward freight.

The definition of ‘output service' has been amended to exclude the taxable service of goods transport agency (GTA) from its purview. Since GTA service is no longer an output service, a GTA service provider cannot utilise input CENVAT credit towards the service tax payable by him on such GTA services.

This is a significant amendment since most of the payment of service tax on GTA services is made by the consignor or the consignee rather than the GTA service provider. Under the earlier provisions, such consignor or consignee was eligible to claim a rebate of 75% value of taxable service on condition that the service provider will not utilise the underlying CENVAT credit.

It was difficult for the consignor or the consignee to ensure that the GTA service provider would not utilise such credit, although they obtained undertakings to this effect from the service provider, as a matter of procedure. The amendment has done away with the need for such undertakings from the service provider and the consignor or the consignee paying service tax on receipt of GTA services can avail the above rebate unconditionally.

Another amendment about the duration of removal of capital goods to any place by the service provider for output services. Now, there is no time limit for return of such goods. Earlier, a limit of 180 days was stipulated.

The most significant amendment effected by the Finance Act 2008 is with respect to the availment of credit on common input goods and services used in taxable and exempt output goods and services. As per the amended provisions where a manufacturer of final products or a provider of output service uses common inputs for manufacture of exempted and taxable goods or for providing exempt and taxable services, and opts not to maintain separate books of accounts, there are two options for the utilisation of the common CENVAT credits.

One is the manufacturer can avail common CENVAT credit and pay excise duty equivalent to 10% of the value of exempted goods. Similarly, the provider of output service can avail common CENVAT credit and pay service tax equivalent to 8% of the value of exempted services.

The other option is that the manufacturer of goods or the provider of output service can avail common CENVAT credit and pay an amount equivalent to CENVAT credit attributable to input goods and services consumed in relation to the manufacture of exempted goods or the provision of exempted services, as per the procedures and conditions specified in sub-rule 3A of Rule 6. The said sub-rule, in principle, provides that the manufacturer can avail the CENVAT credit common to taxable and exempted goods and services by making a provisional monthly payment of the proportionate credit attributable to the exempted goods and services.

The sub-rule further provides a formula to compute the percentage of the CENVAT credit attributable to the exempted goods or services based on the preceding year's turnover of taxable and exempted goods and services. At the end of the financial year through which such provisional payments have been made, the quantum of the CENVAT credit attributable to the exempted goods or services is to be recomputed based on the year's actuals and the amount paid to the government provisionally will be adjusted accordingly. The use of the above formula, by and large, would result in an appropriate identification of common input credit in proportion to the value of taxable and exempted output goods or services for that year.

The option to choose either of the above options has to be exercised and intimated to the department at the beginning of the year and once the option is exercised, it would be in force throughout the relevant financial year.

These options are significantly different from the option available, particularly to the service provider, under the erstwhile provisions. With respect to the service provider, the option under the erstwhile provisions was to utilise the common CENVAT credit to the extent of 20 per cent of the output service tax liability with the ability to carry forward the unutilised common CENVAT credit to be utilised at a later date. The new options give the service provider more flexibility.

There is no amendment in Rule 6(5) of the Credit Rules which provides for full credit in respect of 16 specified services, irrespective of usage of such services for exempted and taxable output goods and services and hence no reversal of credit will be required in relation to such services.

The above amendment would significantly reduce the uncertainty in relation to utilisation of credit and would also solve the issue of attribution of common credits to a large extent. There are, however, certain open issues which are required to be addressed on priority.

For example, issues like how a trading activity is to be recognised and valued — whe-ther or not as an exempted service or how the opening balance of CENVAT credit is to be recognised in the new attribution formula. There are other such issues as well. It is hoped that the CBEC would come out with appropriate clarifications on these open issues to ensure a uniform application of the amended Rules across the country.