INPUT SERVICE READY RECKONER From the desks of Exim Expertise An exercise to appraise of input credit on services availed.

. The definition of input service had been amended substantially form 1st April 2011, and it is important the eligibility to Cenvat Credit for various input service would have to be re-visited. In the following compilation an attempt has been made to identify whether certain commonly used taxable services would be entitled for Cenvat Credit for manufacturers and service providers or not. Though the entitlement for credit for each of service has to be decided individually on a case to case basis depending on the facts and circumstances of each case, the following compilation can be considered as a broad guideline. Even where it is indicated that Cenvat Credit is not entitled for any service, still it can be argued that credit is entitled, on the basis of the remarks given there against. For ready reference, the definition of the various terms which are relevant to cenvat credit entitlement as per Rule 2 of the Cenvat Credit Rules, 2004 effective from 1st April 2011 is given below: a) "capital goods" means:(A) the following goods, namely:(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, 4[heading 6805, grinding wheels and the like, and parts thereof falling under heading 6804] Old[heading No. 68.02 and sub-heading No. 6801.10] of the First Schedule to the Excise Tariff Act; (ii) pollution control equipment; (iii) components, spares and accessories of the goods specified at (i) and (ii); (iv) moulds and dies, jigs and fixtures; (v) refractories and refractory materials; (vi) tubes and pipes and fittings thereof; and (vii) storage tank, used(1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or

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INPUT SERVICE READY RECKONER From the desks of Exim Expertise (1A) outside the factory of the manufacturer of the final products for generation of electricity for captive use within the factory; or] (2) for providing output service; (B) motor vehicle registered in the name of provider of output service for providing taxable service as specified in sub-clauses (f), (n), (o), (zr), (zzp), (zzt) and (zzw) of clause (105) of section 65 of the Finance Act; (C) dumpers or tippers, falling under Chapter 87 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), registered in the name of provider of output service for providing taxable services as specified in sub-clauses (zzza) and (zzzy) of clause (105) of section 65 of the said Finance Act (D) components, spares and accessories of motor vehicles, dumpers or tippers, as the case may be, used to provide taxable services as specified in sub-clauses (B) and (C) d) "exempted goods" means excisable goods which are exempt from the whole of the duty of excise leviable thereon, and includes goods which are chargeable to "Nil" rate of duty; 10[and goods in respect of which the benefit of an exemption under notification No. 1/2011-CE, dated the 1st March, 2011 is availed] (e) "exempted services" means taxable services which are exempt from the whole of the service tax leviable thereon, and includes services on which no service tax is leviable under section 66 of the Finance Act; [and taxable services whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken. h) "final products" means excisable goods manufactured or produced from input, or using input service; k) "input" means(i) all goods used in the factory by the manufacturer of the final product; or (ii) any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products; or (iii) all goods used for generation of electricity or steam for captive use; or (iv) all goods used for providing any output service; but excludes(A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol;

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INPUT SERVICE READY RECKONER From the desks of Exim Expertise (B) any goods used for(a) construction of a building or a civil structure or a part thereof; or (b) laying of foundation or making of structures for support of capital goods, except for the provision of any taxable service specified in subclauses (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act; (C) capital goods except when used as parts or components in the manufacture of a final product; (D) motor vehicles; (E) any goods, such as food items, goods used in a guesthouse, residential colony, club or a recreation facility and clinical establishment, when such goods are used primarily for personal use or consumption of any employee; and (F) any goods which have no relationship whatsoever with the manufacture of a final product. Explanation. - For the purpose of this clause, "free warranty" means a warranty provided by the manufacturer, the value of which is included in the price of the final product and is not charged separately from the customer"] l) "input service" means any service, (i) used by a provider of taxable service for providing an output service; or (ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; but excludes services,(A) specified in sub-clauses (p), (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act (hereinafter referred as specified services), in so far as they are used for-

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INPUT SERVICE READY RECKONER From the desks of Exim Expertise (a) construction of a building or a civil structure or a part thereof; or (b) laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services; 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; or (C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee " (m) "input service distributor" means an office of the manufacturer or producer of final products or provider of output service, which receives invoices issued under rule 4A of the Service Tax Rules, 1994 towards purchases of input services and issues invoice, bill or, as the case may be, challan for the purposes of distributing the credit of service tax paid on the said services to such manufacturer or producer or provider, as the case may be; (n) "job work" means processing or working upon of raw material or semifinished goods supplied to the job worker, so as to complete a part or whole of the process resulting in the manufacture or finishing of an article or any operation which is essential for aforesaid process and the expression "job worker" shall be construed accordingly; naa) "manufacturer" or "producer",(i) in relation to articles of 12 jewellery or other articles of precious metals falling under heading 7113 or 7114 as the case may be of the First Schedule to the Excise Tariff Act, includes a person who is liable to pay duty of excise leviable on such goods under sub-rule (1) of rule 12AA of the Central Excise Rules, 2002; (ii) in relation to goods falling under Chapters 61, 62 or 63 of the First Schedule to the Excise Tariff Act, includes a person who is liable to pay duty of excise leviable on such goods under sub-rule (1A) of rule 4 of the Central Excise Rules, 2002 " (p) "output service" means any taxable service, excluding the taxable service referred to in sub-clause (zzp) of clause (105) of section 65 of the Finance Act,

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INPUT SERVICE READY RECKONER From the desks of Exim Expertise provided by the provider of taxable service to a customer, client, subscriber, policy holder or any other person, as the case may be, and the expressions provider and provided shall be construed accordingly; Explanation.- For the removal of doubts it is hereby clarified that if a person liable for paying service tax does not provide any taxable service or does not manufacture final products, the service for which he is liable to pay service tax shall be deemed to be the output service. q) "person liable for paying service tax" has the meaning as assigned to it in clause (d) of sub-rule (1) of rule 2 of the Service Tax Rules, 1994; (r) "Provider of taxable service" includes a person liable for paying service tax; S.No Category of Service & Subclause under Section 65 (105) Eligibility and ground for eligibility Remarks

(1) 1

(2) Advertising Agency (e) Air Travel (l)

For For service manufacturers providers (3) (4) YES. Relating to advertisement and sales promotion. Agent YES. Except where the services are availed for any tour, which is primarily for the personal use or consumption of an employee. Example. Tickets booked for Leave Travel Concession to employees

(5)

Airport (zzm)

services A manufacturer can not avail credit on Airport services, if he uses such services for construction of a building, or a civil structure, or for laying foundation or for making support structures for capital goods. But when used in or in relation to manufacture and

A service provider can not avail credit on Air port services if he uses such services for construction of a building, or a civil structure, or for laying foundation or for making support structures for capital goods. But when used for providing the out put service, credit would be available.

Still it can be argued that giving LTC is an employee perk, in the interest of employee welfare and hence it is primarily for the benefit of the manufacture / service provider If the output services are falling under Architect service, Airport service, Major Port service, Other port service, Commercial or industrial construction service, Construction of Residential Complex Service, or work contracts service, then credit on Airport service would be allowed, even if it is in relation to construction of building or civil structure, laying foundation or for support structure of capital goods.

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INPUT SERVICE READY RECKONER From the desks of Exim Expertise clearance of final products, e.g. import or raw materials, export of final products, etc. Credit would be available. Architect (p) A manufacturer A service provider can If the output services are can not avail not avail credit on Air falling under Architect service, credit on Airport port services if he Airport service, Major Port services, if he uses such services for Service, Other port service, of a Commercial or industrial uses such construction services for building, or a civil construction service, construction of a structure, or for laying Construction of Residential or for Complex Service or Works building, or a civil foundation structure, or for making support contract service, then credit laying foundation structures for capital on Architect service would be or for making goods. Credit can be allowed even it is in relation to support structures taken, if used for any construction of a building, or a for capital goods. renovation, civil structure, or for laying or foundation or for making Credit can be modernization support structures for capital taken, if used for repair of buildings goods any renovation, modernization or repair of buildings Asset Generally NO. It For a service provider, A case to case approach is management can hardly be an if this service is used necessary. (zzzzc) input service for a for providing his manufacturer/ output service, then credit would be entitled. Auctioneering The definition of input service covers (zzzr) financing. If the assets are auctioned for raising finance by a manufacturer or service provider, then credit can be availed.. Banking and YES. The definition of input service covers other financial financing. services (zm) Beauty parlours NO. It can hardly Generally NO. But in (zq) be an input some cases it can service for a qualify as input manufacturer. If service, if a celebrity the services are actress is endorsing a availed by an brand (zzzzq), then employee, it beauty parlour service

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INPUT SERVICE READY RECKONER From the desks of Exim Expertise would be treated can be an input as primarily for service for the actor. use or consumption by the employee. Business YES. The various YES. The various Auxiliary Service activities covered activities covered in (zzb) in the definition of the definition of BAS BAS would be in would be used for relation to providing output manufacture service or for (production or advertisement and processing) of sales promotion etc. final products, advertisement and sales promotion etc. Business YES. It would be in relation to exhibition advertisement or sales promotion. services (zzo) Specifically covered in the definition. Cargo handling YES. Generally Normally service (zr) such services providers would not would be in be availing this relation to service. If availed, its handling of raw nexus with the output materials, capital services rendered to goods, finished be established. goods, etc. and hence in relation to manufacture and clearance of final products. Chartered YES. The definition covers, accounting, Accountant(s) auditing and financing. Cleaning activity YES. Generally it Generally NO. It (zzzd) would be cannot be said that indirectly relating cleaning is used for to manufacture as providing out put keeping the service. premises clean is important for the manufacturing activity. Clearing & YES. The service YES. If this service is Forwarding would be availed availed by a service Agents (j) in respect of raw provider, it would be

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INPUT SERVICE READY RECKONER From the desks of Exim Expertise materials or normally be in relation finished goods. It to some goods which will be directly or are required for indirectly relating providing the service. to manufacture and clearance of final products upto the place of removal. Clearing House Generally NO as Generally NO, as (zzzzi) these services these services would would be used be used in relation to only in relation to investments made. If investments availed in respect of made. If availed financing credit in respect of would available. financing credit Further, for services would be eligible. like stock broker, subbroker, this would be an eligible input service. Club/Associations NO. It can hardly be an input service for a Still, it can be argued. For (zzze) manufacturer or service provider. If example, the club availed in respect of an employee, would membership for a lawyer or be construed as being service for personal CA helps in promotion of his use of the employees. business. Commercial YES. If such YES. If such coaching coaching and coaching and and training is useful training (zzc) training is in for the output service relation to provided. technical aspects of manufacture, quality improvement, etc. Company YES. The definition covers legal services Secretary (u) and the services rendered by them are legal in nature or they may be relating to auditing and financing. Construction of NO. Specifically NO, except where the complex (zzzh) barred. output services are falling under Architect service, Airport service, Major Port service, Other Port service, Commercial or industrial

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INPUT SERVICE READY RECKONER From the desks of Exim Expertise construction service, Construction of Residential Complex Service or Works Contracts Service. Consulting YES. This service YES, when this Engineers (g) would normally be service is used for used in or in providing output relation to the service. manufacture of the final products. Construction NO. Specifically NO, if such service is services in barred. If such for construction of a respect of services is for building, or a civil commercial or construction of a structure, or for laying industrial building building, or a civil foundation or for and civil structure, or for making support structures (zzq) laying foundation structures for capital or for making goods except where support structures the output services for capital goods. are falling under service, If this service is Architect used for any other Airport service, Major purpose, like Port service, Other service, repairs/renovation Port / modernization to Commercial or the factory or industrial construction office, credit service, Construction Residential would be of admissible. Complex Service, or Works Contracts Service. Credit would be admissible if it is used for repair/ modernization / renovation. Cosmetic/ Plastic NO. NO. May be an input surgery (zzzzk) service for a celebrity actor rendering promotional/ endorsement services. Cost Accountant YES. The definition covers accounting, (t) auditing and financing. Courier Agency Only it can be Yes. As it would be (f) related to used for providing

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Credit Agency (x) Custom House YES. As this Agents (h) would in relation to import of raw materials, CG and export of final products Design Services YES. It would be (zzzzd) relating to the product or advertisement of sales promotion. Development and Not relevant for a supply of content manufacturer. (zzzzb)

INPUT SERVICE READY RECKONER From the desks of Exim Expertise dispatch of output service. purchase orders for raw materials, dispatch of invoices, as they can be considered as indirectly in relation to manufacturing and clearance. Rating YES. Specifically covered in the definition. Normally YES. To be seen on case to case basis.

YES. It would be relating to advertisement of sales promotion. The supply itself is taxable only when provided for telecommunication service providers, online information and database access and retrieval service providers and advertising agency service providers. They can take credit. YES. If the franchisee right has been granted with reference to provision of a taxable service. YES. Credit would not be allowed for insurance of vehicles, except when the

Franchise services (zze)

General Insurance (d)

YES. If the franchisee right has been granted with reference to manufacture of the final product. YES. If the insurance is in relation to plant and machinery,

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INPUT SERVICE READY RECKONER From the desks of Exim Expertise building, etc. But service provider is in credit would not the category of be available if the courier, tour operator, insurance is in rent a cab operator, relation to motor cargo handling vehicles. agency, GTA, outdoor caterer, pandal and shamiana contractor. Health Clubs and NO. NO. May be an input fitness centres service for a celebrity (zw) actor rendering promotional / endorsement services. Hospitals NO. As they Normally No if related would be to employees. But for construed as for an insurance service being used / provider, this is an consumed input service. primarily by employees. Otherwise credit can be taken. Insurance NO. If taken in respect of employees, as it auxiliary service would be construed as primarily for the relating to life employees own benefit. But this would be insurance (zy) an input service for the insurance service Insurance providers. auxiliary services (zl) Intellectual YES. If the IPR is YES. If its nexus to property services in relation to the the output service can (zzr) final product be established. manufactured. Interior YES. If it is in YES. If it is in relation Decorators (q) relation to the to the premises of the factory area, output service show rooms provider. (relating to advertisement and sales promotion) International If the journey is in YES. If the journey is journey by air relation to for providing output (zzzo) manufacture, service or for sales market research, promotion.

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INPUT SERVICE READY RECKONER From the desks of Exim Expertise sales promotion and other activities covered in the definition of input service. IT Services YES. If it is in YES. When used for (zzzze) relation to the providing output manufacturing services. process, or networking. Legal YES. Specifically covered in the consultancy definition. (zzzzm) Maintenance and YES. When the YES. When used for repair services service is relating providing output (zzg) to plant, services. machinery, factory building etc. Management YES. When the YES. When used for Consultancy ( r ) consultancy providing output services relates to services. manufacture, clearance, financing, and other functional areas. Mandap Keepers Credit would be allowed if used for some (m) advertisement, sales promotion. Would not be allowed if used for any employee welfare activities. Manpower YES. As the man YES. As the man Recruitment power procured / power procured / Agency (k) recruited would recruited would be be used in or in used for providing relation to output service. manufacture and Specifically covered in clearance of final the definition also. products, directly or indirectly. Specifically covered in the definition also. Market Research YES. Specifically covered in the definition. Agency (y) On-line YES. YES.

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INPUT SERVICE READY RECKONER From the desks of Exim Expertise information and database access and/or retrieval services (zh) Opinion Poll services (zzs) Outdoor catering (zzt)

YES. If it relates to market research or sales promotion. NO. As it would be presumed as primarily Still it can be argued that for use or consumption by the employees. providing food is an employee perk/ statutory requirement, in the interest of employee welfare and hence it is primarily for the benefit of the manufacture/ service provider and it is a statutory requirement also. Packaging (zzzf) YES. As it would YES. If used for be relating to providing output clearance of final service. Example. It products upto the can be an input place of removal. service for storage and warehousing service and cargo handling service. Pandal or Credit would not Credit would not be if port Shamiana be allowed if port allowed services (zzw) services are services are availed availed for for construction of a construction of a building, or civil building, or civil structure or for laying or for structure or for foundation support laying foundation making or for making structures for capital support structures goods, for a service for capital goods, provider, Except when for a the service provider is manufacturer. If an Architect, major availed for any Port services, Other other purpose, port services , Airport credit would be services, Commercial allowed. or industrial Example: Port construction service, services for construction of residential complex inward transportation of service or works inputs and contract service. If clearance of final port services are not

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INPUT SERVICE READY RECKONER From the desks of Exim Expertise products. used for construction of a building or civil structure, laying of foundation or for laying support structures for capital goods, credit can be availed if it is otherwise used for providing output service. Promotion or YES. Advertisement or sales promotion. Marketing of goods, brands, etc. (zzzzq) Rail travel agents YES. If used for travel in relation to any of (zz) the activities covered in the definition of input service. If the travel is for the employees own benefit, credit would not be allowed. Rent-a-cab NO. Specifically NO. Credit can be Operators (o) allowed only for taken only by service some service providers under providers. category of courier, tour operator, rent a cab, cargo handling, GTA, outdoor catering, pandal and shamiana contractors. Renting of YES. If the YES. As the building immovable building is in or in would be used for property (zzzz) relation to providing output manufacture and services. clearance of final products. The show room rents can also be availed as credit on the ground of sales promotion. Sale of space YES. Advertisement or sales promotion. /time for advertisement (zzzm) Scientific and YES. If such YES. If such Technical consultancy is consultancy is for

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INPUT SERVICE READY RECKONER From the desks of Exim Expertise Consultancy relating to providing output Services (za) manufacture or service. the final products. Security (w) YES. Specifically covered in the definition. Service station NO. Specifically NO. Credit can be for servicing of allowed only for taken only service motor car and some service providers under the two wheelers (zo) providers. category of courier, tour operator, rent a cab, cargo handling, GTA, outdoor catering, Pandal and Shamiana contractors. Site formation, YES, if used for YES if used for etc. (zzza) modernization, modernization, renovation, and renovation, and repairs to factory / repairs to service office of providers premises. manufacturer. This service can be an input service for construction services, WCS services etc. Stock Brokers (a) YES. Being in relation to financing. Storage and YES. As they YES. If they are used warehousing would be in for providing output services (zza) relation to service, For example, manufacture and for a C&F Agent or clearance of final CHA, this can be an products or input service. storage of inputs or final products. Supply of YES. Unless it is YES. If such goods tangible goods in relation to used for providing (zzzzj) motor vehicles. output service. If the Such goods must goods involved are be used in or in motor vehicles, relation to Cenvat Credit can be manufacture of taken only by service and clearance of providers under the final products. category of courier, tour operator, rent a cab, cargo handling, GTA, outdoor catering, Pandal and Shamiana

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INPUT SERVICE READY RECKONER From the desks of Exim Expertise contractors. . Support services YES. YES. for commerce / business (zzzq) Technical testing YES. Quality control is specifically and analysis covered. (excluding health and diagnostic testing); Technical inspection and certification service. (zzh) & (zzi) TeleYES. This service would be used for any communication of the activities covered in the definition of service (zzzx) input service Tour operator (n) YES. Unless it is used for the personal use/ consumption of employees. Transport of YES. As such YES, if such services goods by air (zzn) transportation are used for providing would be either in output service. Transportation of goods by rail relation to inward transportation of (zzzp) Transport by inputs or outward inland water transportation of final products up (zzzzl) Transport of to the place of goods by road removal. GTA (zzp) Transport of goods other than water through pipeline or conduit (zzz) Travel agents YES. If used for travel in relation to any of (other than air/ the activities covered in the definition of rail/ travel agents) input service. If the travel is for the (zzx) employees own benefit, credit would not be allowed. Underwriting YES. Relating to financing. Services (z) Works Contract Credit would not be Credit would not be (zzzza) allowed if Works allowed if Works Contract services Contract services are availed for are availed for

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INPUT SERVICE READY RECKONER From the desks of Exim Expertise construction of a construction of a building or civil building or civil structure or for structure or for laying foundation or laying foundation or for making support for making support structures for capital structures for capital goods, for a goods, for a service manufacturer. If provider, except availed for any when the service other purpose, provider is an credit would be Architect, Port allowed. Example; Services, Airport Availed for repair or services, renovation of Commercial or factory building. industrial construction service, construction of residential complex service or works contract service. If works contract services are not used for construction of a building or civil structure or for laying foundation or for making support structures for capital goods, credit can be availed, if it is otherwise used for providing the output service. Example; Works contract services availed for repair or renovation to the premises of service provider. Restaurants and YES. If used in relation to any of the Accommodation activities covered in the definition of input in Hotels (zzzzv) service. & (zzzzw), Effective from 8th April 2011.

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INPUT SERVICE READY RECKONER From the desks of Exim Expertise This experiment has been made only in respect of certain services which are commonly used by the manufacturers and service providers and not in respect of all taxable services. It is again reiterated that the conclusion contained in this table can be only a guiding factor and the eligibility has to be decided on a case to case basis of the facts and circumstances of each case. On the whole, following conditions to be satisfied for eligibility as input service and credit: 1. Services should not be explicitly excluded by exclusion clause A to C of Rule 2(l) (ii) : eg., Own consumption by employee 2. Service should be directly or indirectly related to manufacture of final products and clearance of final products up to the place of removal. 3. Services should be incurred towards manufacture of dutiable goods or taxable services. In other way, credit should not on account of exempted products or services. Please note that trading is an exempted service and proportionate credit to be reversed along with interest.

Lakshmi Venkataraaman

Note: I would request all the users to include the services which are not mentioned in the above chart so that comprehensive ready reckoner can be circulated to the users.

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