A Simple Guide to Service Tax Credit

[Submitted by Mr. V.M.V.Subba Rao, B.Com. F.C.A. D.I.S.A(ICA)]

As amended by Finance Act, 2004, the Cenvat credit is available across all goods and services. In other words, the service tax paid is eligible for set-off against payment of service tax and excise duty and also excise duty paid is eligible for set-off against payment of excise duty and service tax.

Any service tax paid on input service is eligible for set-off against payment of service tax on output service where such input services are directly or indirectly used for the purpose of rendering output services.

The rate of service tax has been increased from 8% to 10% with effect from 10th September,2004 apart from the levy of education cess @2% thereon.

The education cess paid on input service is eligible for set-off only against payment of education cess on output service.

The service tax credit can be taken only against actual payment of service tax on input services not on liability created in the books on accrual basis.

However, in the case of excise duty, credit can be taken as and when the goods are received by the service provider. If the goods are capital in nature, the credit is restricted to 50% of excise duty paid and the remaining shall be taken in any subsequent year.

Where the output service provider renders both taxable and non-taxable services , the service tax paid on input services relating to non-taxable services shall not be eligible for set-off.

Where the output service provider does not maintain separate books of account in respect of taxable and non-taxable services, the service tax credit shall be restricted to 20% of the amount of service tax payable on such output services.

In the above situation, it is not clear as to whether such balance credit can be carried forward to subsequent months or not.

The service tax on the value of taxable services received during the month of March or for the quarter ending March, shall be paid on or before 31st March of such calendar year.

As per circular No.59/8/2003 (F No.B3/7/2003-TRU) dt.20/6/2003 the service tax paid on usage of mobile /cell phones is not available for credit even if it is used for business purpose.

Precautions to be taken while availing Service Tax Credit:

  • Please ensure that PAN based service tax registration number of the service provider is quoted in their invoice.
  • Obtain a copy of service tax registration certification from the service tax provider.
  • Proof of payment of service tax at the end of the service provider is also to be obtained.
  • The address mentioned in the invoice should match with the address mentioned in the service tax registration certificate.
  • Service tax and Education Cess should be clearly bifurcated and mentioned in the invoice issued by the service provider.
  • The necessary evidence in respect of payment of invoice like cheque / DD no. etc should be enclosed with the invoice which will form the basis for claiming of service tax credit.
  • Obtain a copy of receipt from the service provider after making the payment.
  • Maintain a separate account in the books of account for service tax credit and service tax paid.
  • Maintain a separate register in respect of service tax paid/credit in support of Return in Form ST-3 to be filed with the department on half yearly basis.


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