The document discusses the applicability of service tax on banking services in India. It provides an overview of service tax regulations, defines key terms like "service", outlines the negative list of services exempt from tax, and discusses specific tax treatment of common banking services and transactions. Declared services are also defined, and examples of taxable and non-taxable services provided by banks are listed.

1. Applicability of Service Tax
on
Banking services
A Presentation for By
The Rajasthan Urban Co-Op. Banks Dr. Sanjiv Agarwal
Federation Limited FCA, FCS
21st February, 2015 Jaipur
© Dr. Sanjiv Agarwal

2. • Origin and Concept of Service Tax
• What is Service
• Services under Negative List (specific to banks)
• Declared services (specific to banks)
• Taxable / Non-taxable services for banks
• Charge of Service Tax
• Point of Taxation
• Registration
• Invoice
• Payment of Service Tax
• Returns under Service Tax
• Reverse Charge Mechanism (RCM)
• Penalties
• Cenvat Credit - Basic provisions 2
This presentation covers

3. Indian Economy – An Overview
• India’s economy is the 11th largest economy in the world and the third fastest growing even in
today’s recession, after China and Indonesia (Present growth rate @ 4.7%)
• World is presently facing recession-II but Indian economy is still a long term growth economy
• Inflation – food, lifestyle – growth trigger
• Tax GDP ratio 10.5%; ST contributes to about 13% of total tax revenue and over one-third of
indirect taxes
• Agriculture, services and industry are the major sectors of Indian economy. Contribution of
different sectors in March, 2013 was :
Agriculture 19%
Services 59%
Industry 22%
(@ 57 % in March, 2014 ; World average @63.6%)

4. Share of Services in GDP

5. ORIGIN & CONCEPT OF SERVICE TAX
• Chapter V, VA and VI of the Finance Act, 1994 (section 64 to 114) contains provision
of Service Tax.
• In 1994, Service Tax was introduced by levy on only three services with selective
approach.
• Service Tax is an indirect tax leviable on the provision of service
• Destination based consumption tax recoverable from consumer / recipient.
• Desirable from revenue, equity and economic view point.
• Governed by Finance Act, 1994 and a dozen of rules.
• Legislative dependence on over 25 other laws.
• Selective approach has been shifted to comprehensive approach in 2012
• Upto 30.06.2012, > 120 taxable services [section 65(105)]
• W.e.f. 01.07.2012, all services other than services specified in negative list &
exempted services liable to service tax.
• Negative List (17 in number) specified through statutory provisions – section 66D

6. Growth of Service Tax
Year (March) No of new
services
Total No of
services
Total
collection (Rs.
in crore)
1994 3 3 426
2001 - 26 2612
2005 13 72 14200
2008 7 103 51301
2010 3 112 58422
2012 0 120 97509
2013 - All 132600
2014 - All 164927(RE)
2015 - All 215973 (BE)

7. Tax-GDP Ratio at a Glance

8. Indirect Tax Revenue – At a Glance

9. Service Tax - Today
Shift to Comprehensive Approach
– W.e.f. 1 July 2012
– Finance Act, 2012 – A land mark Act to shift from positive to
negative approach.
– It took 18 years to shift from selective approach to positive
approach to tax services
– All services to be taxed other than services specified in the
negative list and exempted services – Section 66B.
– Negative list (17 in number) specified through statutory
provisions – Section 66D.
– ‘Service’ defined for the first time.
– ‘Negative List’ and ‘declared services’ also defined.

10. What is Service
‘Service' has been defined in clause (44) of the new
section 65B and means –
• any activity
• for consideration
• carried out by a person for another
• and includes a declared service (66E)

11. What is Service
• Activity must be for a consideration
• Activity – includes both activity as well as non-activity
• Consideration – includes both monetary and non monetary
consideration.
• Two persons are involved –
Service provider
Service receiver
• Only services provided by one person to another are taxable
• Person – natural as well as artificial

12. What is Service
Activity
• Not defined in the Act
• In common understanding, activity includes –
 An act done
 A work done
 A deed done
 An operation carried out
 Execution of an act
 Provision of a facility etc.
• Activity could be active or passive and forbearance to act
• Agreeing to an obligation to refrain from an act or to tolerate an act or a
situation - listed as a declared service u/s 66E

13. Consideration
• Means everything received or recoverable in return for a provision of
service which includes -
Monetary payment
Non-monetary payment
Deferred consideration
• Under Indian Contract Act, 1872, ‘consideration’ means -
“When, at the desire of the promisor, the promisee or any other person
has done or abstained from doing, or does or abstains from doing, or
promises to do or to abstain from doing, something, such act or
abstinence or promise is called a consideration for the promise”
13
What is Service

14. Activity for a Consideration
• Activity should be carried out by a person for a consideration
• Activity without consideration like-
Donation
Gifts
Free charities
outside the ambit of service
• Charity for consideration would be service and taxable unless otherwise
exempted
14
What is Service

15. Person-65B(37)
• "person" includes,–
 an individual,
 a Hindu undivided family,
 a company,
 a society,
 a limited liability partnership,
 a firm,
 an association of persons or body of individuals, whether incorporated or
not,
 Government,
 a local authority, or
 every artificial juridical person, not falling within any of the above
• UCBs are covered under the definition of person
15
What is Service

16. What is Service : Exclusions
'Service' does not include -
• any activity that constitutes only a transfer in title of goods or immovable
property by way of sale, gift or in any other manner a transfer, delivery or
supply of goods which is deemed to be a sale of goods within the meaning
of clause (29A) of article 366 of the Constitution
• a transaction only in money or actionable claim
• a service provided by an employee to an employer in the course of the
employment.
• fees payable to a court or a tribunal set up under a law for the time being
in force

17. What is Service
This scope shall not apply to –
a) functions performed by M.P., M.L.A., Members of Panchayats /
Municipalities who receive any consideration in performing the
functions of that office as such member; or
b) duties performed by any person who holds any post in pursuance of the
provisions of the Constitution in that capacity; or
c) duties performed by any person as a Chairperson or a Member or a
Director in a body established by the Central Government or State
Government or local authority and who is not deemed as an employee
before the commencement of this section.

18. Director’s Services - Taxable
• Director’s services to the company are taxable w.e.f 1.7.2012
• Sitting fees, commission, bonus, etc. are subject to service tax
• 1.7.2012 upto 6.8.2012 - deposited by the directors
• From 7.8.2012 -deposited by the company under RCM
• W.e.f. 11.07.2014, services provided by the director of body
corporate are also covered under RCM
• WTDs /MDs /EDs who are under contractual employment
with the company and receive salary or remuneration will not
be covered - considered as employees of the company
18

19. 19
Taxability of Services w.e.f. 1.7.2012
All services
[section 65B (44)]
Taxable
Declared services
(section 66E)
Taxable
Services covered under negative list of services (section 66D) Not Taxable
Services exempt under Mega Notification No. 25/2012-ST
dated 20.6.2012
Exempted
Other specified Exemptions Exempted

20. 20
All Services
(including declared Services
(-)
Specific Exclusions
(-)
Negative List Services
Exemptions
Taxable Services
(-)
(=)

21. 21
Taxable
3. Exemptions
(48)
1. Non -
Taxable
territory
(POPS)
2. Negative
list (17)
SERVICE FOR A CONSIDERATION
E - MAGIC TEST
E: Employee
M: Money
A: Actionable claim
G: Goods
I: Immovable property
C: Court Fee
9DECLAREDSERVICES

22. Negative list of Services
What is Negative List
• Defined in new section 66D
• Section 66D Specifies seventeen 17 broad categories of services.
• Effective from 1-7-2012
• If an activity meets the charactertics of ‘ service ‘, it is taxable unless
specified in Negative List.
• Based on socio-economic–tax criterion

23. Financial Services in Negative List
Services by way of— (Clause N)
(i) extending deposits, loans or advances in so far as
the consideration is represented by way of interest
or discount;
(ii) inter se sale or purchase of foreign currency
amongst banks or authorised dealers of foreign
exchange or amongst banks and such dealers;

24. Financial Services in Negative List
• Transactions in money outside the ambit of ‘service’
• Any activity related to a transaction in money by way of its use or
conversion by cash or by any other mode, from one form , currency or
denomination to another form, currency or denomination would not be
treated as a transaction in money if a separate consideration is charged for
such an activity
• Interest rate swaps and foreign exchange swaps are not taxable being
securities
• But service charges for transactions in money including of charges for
making of drafts, letter of credits issuance charges, service charges
relating to issuance of CDs/ CPs etc

25. Financial Services in Negative List
• Only interest and discount are in negative list
• ‘interest’ means interest payable in any manner in respect of any money borrowed or debt incurred
(including a deposit, claim or other similar right or obligation) but does not include any service fee
or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit
facility which has not been utilized. [Section 65B(30)]
• Interest on
– Money borrowed
– Debt incurred
– Deposit
– Claim / obligation/ similar right
• Service charge / fee/ commission not covered in negative list (e.g. pre payment fee, late fee,
cheque bounce charges)
• interest on credit facility not utilized (commitment charges ) not covered
• Bill discounting – only discount in nature of interest covered

26. Financial Services in Negative List
• Any charges over and above interest/ discount taxable
• Purchase/ sale of foreign currency between banks and authorized dealers
under negative list
• Examples of services in negative list-
– Fixed deposits or saving deposits or any other such deposits in a bank for which
return is received by way of interest
– Providing a loan or over draft facility for in consideration for payment of interest
– Mortgages or loans with a collateral security to the extent that the consideration
for advancing such loans or advances are represented by way of interest
– Corporate deposits to the extent that the consideration for advancing such loans or
advances are represented by way of interest or discount

27. Declared Services
• Clause 44 of section 65B defines service – it includes a declared service.
• There are 9 categories of services or activities as declared services implying that on
all such nine declared services, Service Tax shall be payable
• Does not include any such transfer, delivery or supply of any goods which is
deemed to be a sale within the meaning of Article 366(29A) of the Constitution of
India.
• What is declared services is defined in section 65B(22) to mean any activity carried
out by a person for another person for a consideration and declared as such under
section 66E of the Act.
• They are amply covered by the definition of service but have been declared with a
view to remove any ambiguity for the purpose of uniform application of law all
over the country

28. Declared Services
Section 66E defines 'declared service' as follows –
(a) renting of immovable property;
(b) construction of a complex, building, civil structure or a part thereof, including a complex or
building intended for sale to a buyer, wholly or partly, except where the entire
consideration is received after issuance of completion-certificate by the competent
authority.
(c) temporary transfer or permitting the use or enjoyment of any intellectual property right;
(d) development, design, programming, customization, adaptation,upgradation, enhancement,
implementation of information technology software;
(e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to
do an act;
(f) transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer
of right to use such goods;
(g) activities in relation to delivery of goods on hire purchase or any system of payment by
installments;
(h) service portion in the execution of a works contract;
(i) service portion in an activity wherein goods, being food or any other article of human
consumption or any drink (whether or not intoxicating) is supplied in any manner as a part
of the activity.

29. Renting of Immovable Property
Renting of Immovable Property
Renting (Section 65B (41)) allowing, permitting or granting access, entry, occupation,
usage or any such facility, wholly or partly, in an immovable property, with or
without the transfer of possession or control of the said immovable property and
includes letting, leasing, licensing or other similar arrangements in respect of
immovable property
Renting of certain kinds of immovable properties is specified in the negative list
• Renting of vacant land, with or without a structure incidental to its use, relating
to agriculture.
• Renting of residential dwelling for use as residence
• Renting out of any property by Reserve Bank of India
• Renting out of any property by a Government or a local authority to a non-
business entity

30. Renting of Immovable Property
Exemptions to Renting of Immovable property
• Threshold level exemption up to Rs. 10 lakh.
• Renting of precincts of a religious place meant for general
public is exempt.
• Renting of a hotel, inn, guest house, club, campsite or other
commercial places meant for residential or lodging
purposes, having declared tariff of a room below rupees
one thousand per day or equivalent is exempt.
• Municipal Taxes (Notification No. 29/2012-ST dated
20.6.2012)

31. Renting of Immovable Property
 The immovable property could be –
– factories
– office buildings
– warehouses
– theatres
– exhibition halls, and
– multiple use buildings.
– commercial markets
– shops / shopping centre
– hotel, guest houses etc
– community centre etc
 Allowing or permitting the usage of immovable property without transferring possession of such property
is also renting of immovable property.

32. Declared Services
Agreeing to an obligation to refrain from an Act / to tolerate Act
or situation / to do an Act [section 66E(e)]
Following activities if carried out by a person for another for consideration
would be treated as provision of service -
• Agreeing to an obligation to refrain from an act.
• Agreeing to an obligation to tolerate an act or a situation.
• Agreeing to an obligation to do an act.
32

33. Declared Services
Obligations / Actions
Examples of Taxable Obligations / Actions
• Non-compete fees for agreeing not to compete
• Pre-payment charges
• Forfeiture of rental deposits
• Compensation on termination of business agreements
• Advance forfeited for cancellation of agreement to provide a service.
• Forfeiture of security deposit for damages done by service receiver in course
of receiving of services.
• Cancellation charges being charged by airlines, railways, hotels etc.
• Consideration for non-appearance in a court of law or withdrawal of suit.
• Demurrage charges or detention charges
33

34. Services provided by Banks
Source of Income Taxability
Interest earned Non- taxable
Discount Non- taxable
Commission on Pay Order / Demand Draft / LC etc. Taxable
Commission from specified business other than banking business
(Insurance, Mutual Fund etc.)
Taxable
Foreign Exchange Commission Taxable
Charges on non-maintaining minimum balance in account Taxable
Subsidies Non- taxable
Profit from sale of / dealing with non-banking assets Non-taxable
Locker’s rent Taxable
Income on card business Taxable

35. Services provided by Banks
Source of Income Taxability
ATM charges Taxable
Loan processing charges Taxable
Commission received on Bank Guarantee (BG)/ Letter of Credit
(LC)
Taxable
Charges for making Demand Draft (DD) / Payment Order (PO) Taxable
Handling charges Taxable
Interest on late payment of Installment Non- taxable
Charges for issuance of cheque book / pass book / statement Taxable
Renting of immovable property Taxable

36. Charge of Service Tax
Section 66B (W.e.f 1.7.2012)
There shall be levied a tax at the rate of twelve
per cent on the value of all services, other than
those services specified in the negative list,
provided or agreed to be provided in the taxable
territory by one person to another and collected
in such manner as may be prescribed

37. Point of Taxation
Point of Taxation Rules, 2011
• Point of taxation means the point in time when a service shall be deemed
to have been provided.
Point of Taxation in General (Rule 3)
• Date of invoice or payment, whichever is earlier, if the invoice is issued
within 30 days (45 days for banks) from the date of completion of service.
• Date of completion of provision of service or payment, whichever is
earlier, if the invoice is not issued within 30 days (45 days for banks) .

38. Point of Taxation
Rule 7 - Determination of Point of Taxation in case of specified services or persons
(Reverse charge mechanism)
• POT in respect of services covered under RCM shall be earlier of :
 the date of payment, or
 the first day after three months from the date of invoice (i.e., where payment has not been
made)
• Prior to 1.10.2014, time period for payment was six months.
• Prior to this amendment, in case when payment was not made within prescribed period ( 6
months) , rule 3 (general rule) was applicable.
• W.e.f. 1.10.2014, Rule 3 will not be applicable in case of delayed payment, as earlier
• This change will be applicable only to the invoices issued on or after 01.10.2014 (Rule No. 10)
38

39. Valuation of Services
• Gross amount charged by the service provider for such services provided or
to be provided (Section 67)
• Explanation (a) to Section 67 - “consideration” includes any amount that is
payable for the taxable services provided or to be provided
• Inclusive definition – General meaning to be considered
• ‘consideration’ means everything received in return for a provision of service -
may be in the form of monetary or non- monetary or deferred consideration
• Nexus between service and consideration is necessary
• Reimbursement of expenses ??
• Interest on delayed consideration excluded.
39

40. Registration under Service Tax (Section 69)
• Every person who is liable to pay service tax shall take registration under
service tax
• Service recipient ( in specified cases ) shall obtain registration under service
tax as recipient of service, pay service tax and file return
• Assessees who have to take registration
– Service provider who has provided a taxable services of value exceeding
Rs. 9 lakhs in the preceding financial year
– Service receiver liable to pay service tax under reverse charge mechanism
u/s 68(2) / rule 2(1)(d)
– Input service distributor
– Importer of service being person liable u/s 68(2)
• Form ST-1 is used for application of Service Tax registration number which has
to be filed online only.
• Registration certificate issued in Form ST-2

41. Centralized Registration
• An assessee has to register all locations from where taxable services
are provided, or opt for one single / centralized registration.
• Banks can obtain more than one registered office such as his zonal
or regional office depending upon their centralized billing or
accounting systems.
• For centralized registration either billing or accounting should be
centralized
• Benefits of Centralized registration -
– One return (centralized for all units)
– One assessment
– Centralized billing
– Centralized accounting
– All the Departmental communication from one place
– Effective and maximum utilisation of Cenvat Credit

42. Registration under Service Tax (Section 69)
• Banks may take registration under following services:
(i) Banking and Other Financial Services
(ii) Renting of Immovable Property Services
(iii) Other Taxable Services [Services other than 119 listed]
(iv) Legal Services (under reverse charge)
(v) Sponsorship Services (under reverse charge)
• Head office can registered as Input Service Distributor

43. Invoices (Rule 4A)
• Invoice is required to be prepared by the service providers
• A invoice shall contain the following:-
(i) the name, address and the registration number of such person;
(ii) the name and address of the person receiving taxable service;
(iii) description, classification and value of taxable service provided or to be provided ; and
(iv) the Service Tax payable thereon.
(v) invoice shall be serially numbered
• But in case of banking companies or financial institutions, following are not mandatory to mention in
invoice:
(i) invoice number (serially numbered), and
(ii) address of the person receiving taxable service
• In normal course, invoice has to be issued within 30 days from the completion of service but in
banking business, it is 45 days.

44. Payment of Service Tax
• Section 68 and Rule 6 deals with payment of service tax
• Every person providing taxable service (service provider) shall pay
tax @ 12.36% , to be collected in prescribed manner. [section 68(1)]
• Service recipient is a person liable to pay service tax under RCM in
specified cases [section 68 (2)]
• Person liable to pay service tax – defined in rule 2(1)(d) of Service
Tax Rules, 1994
• Payment to be made on quarterly basis by individuals / firms and
monthly by others

45. Payment of Service Tax
• The Service Tax shall be paid by banks to the credit of the Central Government –
(i) by the 6th day of the month, where duty is deposited electronically through
internet banking ; and
(ii) by 5th day of the month, in any other case
immediately following the calendar month in which the service is deemed to be
provided as per POT rules. (whether collected or not)
• It is compulsorily required to make payment electronically (e.g. NEFT, Online
Transfer etc.)
• For the month ending March of any year, the payment should be made in same
calendar month (i.e. upto 31st March).
• Payment to be made by challan – GAR 7

46. Service Tax Returns
• As per Sections 70 and 71A of the Finance Act, 1994 and Rule 7 and
7A of the Service Tax Rules
• Filed in prescribed Forms ST-3
• The due dates for filing of Service Tax returns are as follows
For the half year To be filed by
1st April to 30th September 25th October
1st October to 31st March 25th April
• As per rule 7B, return can be revised within 90 days from the date
of filing the return to rectify any mistake or omission.

47. Reverse Charge Mechanism
• Normally, service tax is payable by person who provides the service
• Section 68(2) makes provision for reverse charge i.e. making person receiving the
service liable to pay tax
• Authority for reverse charge u/s 68(2) of Finance Act, 1994
• Person liable to pay tax – Rule 2(1)(d) of Service Tax Rules, 1994
• W.e.f. 1.7.2012, a new scheme of taxation is applicable whereby the liability of
payment of service tax shall be both on the service provider and the service
recipient (Notification No. 30/2012-ST, dated 20.6.2012 )
• The extent to which tax liability has to be discharged by the service receiver is
specified in Notification No. 30/2012-ST dated 20.6.2012.

48. Liability to pay tax under Reverse Charge by Service
Receiver
Under Partial Reverse Charge (Proportional / Joint)
– Renting of motor vehicles
– Manpower supply & security services
– Works contracts
Under Full Reverse Charge (100%)
– Insurance related services by agents
– goods transportation by road
– sponsorship
– arbitral tribunals
– legal services
– company / body corporate director's services
– services provided by Government / local authority excluding specified services
– services provided by persons located in non-taxable territory to persons located in taxable territory.

49. Reverse Charge Mechanism
• “Business Entity” means any person ordinarily carrying out any
activity relating to industry, commerce or any other business or
profession
• “Body Corporate” means the meaning assigned to in clause (7) of
Section 2 of the Companies Act, 1956 and section 2(11) of 2013 Act.
• Company , corporation and LLP are ‘body corporate’
• Firm, HUF, Trust are not ‘body corporate’
• Co-operative society is legally not ‘body corporate’
• UCBs are business entities but not a body corporate therefore,
proportional RCM will not apply

50. Service Provider Service Receiver Service Tax Payable by
Individual /HUF/
Partnership firm /AOP
Business entity – body
corporate
Joint
Individual /HUF/
Partnership firm /AOP
Individual /HUF/
partnership firm /AOP
100 % by service
provider
Business entity –Body
Corporate / Company
Individual /HUF/
Partnership firm /AOP
100 % by service
provider
Business entity –Body
Corporate
Business entity – Body
Corporate
100 % by service
provider
50
Reverse Charge Obligations

51. Interest Under Service Tax
S. No. Period of Delay Rate of simple interest (p.a.)
1 Upto 6 months 18%
2 Between 6 to 12 months 18% for the first 6 months + 24% for
the remaining period
3 More than 12 months 18% for the first 6 months + 24% for
the next 6 months + 30 % for the
remaining period
(Interest u/s 75 applicable w.e.f. 1.10.2014)
51

52. Penalties relating to Service Tax
Sections / Rules Defaults Penalties
Section 70 Belated filing of return For Delay of 15 days – Rs.500/-
For Delay between 16-30 days – Rs.1000/-
For Delay beyond 30 days – Rs. 1000/- + Rs. 100 per day
(subject to maximum amount Rs. 20,000/-)
Section 76 Failure to pay Service
Tax
Not less than Rs. 100/- for every day during which such
failure continues or at the rate one percent of such tax per
month, whichever is higher ; Maximum penalty shall not
exceed 50% of service tax payable
Section 77 (1) (a) Failure to obtain
registration
Extend up to Rs. 10,000/-
Section 77 (1) (b) Failure to keep, maintain
or retain books of
account
Extend up to Rs. 5,000/-

53. Penalties relating to Service Tax
Sections / Rules Defaults Penalties
Section 77 (1) (c) Failure to furnish information called
by officer as per Provision/ Rule
Rs. 200/- per day of default or up to Rs. 10,000/-,
whichever is higher.
Section 77 (1) (d) failure to pay Service Tax
electronically
Up to Rs. 5,000/- per default
Section 77 (1) (e) Issuance of invoice with incorrect/
incomplete details of failure to
account for
Maximum upto Rs. 5,000/-
Section 77 (1) (2) For any other contravention Maximum upto Rs. 5,000/-
Section 78 Suppression  Not less than up to the amount of tax due.
 50% of the service tax if records are maintained
 In case of Service Tax is paid along with interest
within 30 days (90 days in case of assessees with
turnover upto Rs. 60lakhs) of order, 25% of tax
determined.
Section 78A Offences by directors etc. of
company
Up to Rs. 1,00,000/-

54. Cenvat Credit –Basic Concepts
Cenvat Credit Rules, 2004
 Applies to whole of India except J & K
 Cenvat implies Central Value Added Tax, not defined
 CENVAT is Central Value Added Tax, which is based on VAT system of taxation wherein credit
of duty paid on input, input services and capital goods can be claimed by service provider or
manufacturer.
 Enables manufacturer or service provider to take credit of duties / tax / cesses paid on
eligible inputs / goods and services for manufacture of dutiable goods or provision of taxable
services and utilise such credit for payment of output duties / tax / cesses
 Covers capital goods , inputs and input services

55. Cenvat Credit –Basic Concepts
Cenvat Credit Rules, 2004
 Credit of interest and penalties cannot be taxable
 No prescribed records; those maintained by assessee’s acceptable to Department
 Education cess also Cenvatable but can be utilize only for payment of education
cess
 No one to one correlation between input and output is required
 Cenvat to be taken only against specified documents
 No time limit is prescribed for taking Cenvat credit till 31.08.2014
 W.e.f. 1.09.2014, Cenvat to be take within a period of 6 months

56. Cenvat Credit –Basic Concepts
Capital Goods – Rule 2(a)
• Goods falling under CETA headings:
o 82 – Tools, implements, cutlery of base metals and parts thereof of base metals
o 84 – Nuclear Reactors, Boilers, Machinery and mechanical appliances; parts thereof
o 85 – Electrical Machinery and equipments and parts thereof, etc
o 90 – Optical, photographic, measuring, precision, medical instruments, parts thereof, etc.
• Pollution Control Equipments & parts
• Components, spares and accessories of the above goods;
• Moulds & Dies,
• Jigs & fixtures
• Refractories & Refractory Materials
• Tubes, pipes & fittings thereof
• Storage Tanks
• Motor Vehicles(MV) other than:
• 8702 – MV for transport of 10 or more persons
• 8703 – Motor Cars & Motor Vehicle principally designed for transport of persons (other than 8702)
• 8704 – MV for transport of goods
• 8711 – Motor Cycles including mopeds
• Dumpers & Tippers

57. Cenvat Credit –Basic Concepts
Capital Goods – Rule 2(a)
 Used in the factory
 Used Outside the factory
• Generation of Electricity
• Captive consumption – inside the factory
 Used for providing Output Service
 Used in an office
• Equipment & Appliances in office (excludes)
• Provided office is within the factory
 Motor Vehicle for transportation of goods, used for:
 Courier Agency services
 Renting out of such motor vehicle
 Transportation of input and capital goods used to provide output service –
Pandal & Shamiana Service
 Motor vehicle and Chasis – Registration to be in the name of Service Provider

58. Cenvat Credit –Basic Concepts
Exempted Service – Rule 2(e) of CCR, 2004
• Service wholly exempted , or
• Non taxable service - Not chargeable U/s 66B (section
66D), or
• Whose part of value is exempted on condition that no
credit on input and input services shall be taken ( N. No.
26/12- ST dt 20.6.12)
• Includes trading of goods
but excludes Service exported under rule 6A of STR, 1994

59. Cenvat Credit –Basic Concepts
Input Service – Rule 2(l) of CCR, 2004
Any service:
 Used to provide output service , or
 Used by Manufacturer
• Whether directly or indirectly
• In or in relation to manufacture of final product, and
• Clearance of final product upto place of removal
And specifically includes services in relation to:
 Modernization, renovation or repairs of -
• factory,
• premises of provider of output service premises, or
• Office in relation to factory/ premises
contd………

60. Cenvat Credit –Basic Concepts
Input Service – Rule 2(l) of CCR, 2004
• Advertisement or sales promotion
• Market Research
• Business exhibition
• Storage upto place of removal
• Procurement of inputs
• Accounting
• Auditing
• Financing
• Credit rating
• Share Registry
• Recruitment & quality control
• Coaching & training
• Computer networking
• Security
• Legal services
• Inward transportation of input or capital goods
• Outward Transportation – Upto place of removal
contd………

61. Cenvat Credit –Basic Concepts
Input Service – Rule 2(l) of CCR, 2004
Specifically excludes
• Construction/ works contract service used for:
• Construction of building/ Civil structure, or
• Laying of foundation/ support structures for capital goods
Except when goods used for providing Construction Service/ Works Contract Service
• Renting of Motor Vehicle which is not a capital good
• Services of general insurance, servicing, repair & maintenance relating to motor vehicle
which is not a capital goods except when used by-
• Manufacturer of motor vehicle in respect of motor vehicle manufactured by them
• Insurance company in respect of re-insurance of motor vehicle, repairs to motor
vehicle payable due to insurance.

62. Cenvat Credit –Basic Concepts
Output Service - Rule 2(p) of CCR, 2004
Any service provided by a provider of service located in
the taxable territory but shall not include a service,—
(1) specified in section 66D ( negative list); or
(2) where the whole of service tax is liable to be paid
by the recipient of service.( reverse charge)

63. Cenvat Credit Rules, 2004
Specific Provisions for Banks / NBFCs
• Rule 6(3B) of Cenvat Credit Rules, 2004 relates to banking/ financial
institutions and NBFC companies
• Engaged in providing services by way of:
(i) extending deposits
(ii) loans or
(iii) advances
• Shall pay for every month an amount equal to fifty percent of the
Cenvat credit availed on inputs and input services in that month.

64. Cenvat Credit
Input Service Distributor – Rule 7 of CCR, 2004
• Concept applicable only for input service
• Applicable where head office, branch or depot makes Service Tax payment for services
used by more than one units.
• Input service distributor:
 Means office / branch / depot of manufacturer/ provider of output service,
 Which receives invoices under rule 4A of Service Tax Rules, 1994 towards
purchases of input services and
 Issues invoice, bill or, challan
 For distributing credit of Service Tax
• ISD to be registered separately
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65. Cenvat Credit
Manner of Distributing Credit by ISD - Rule 7 of CCR, 2004
• Credit if attributable to a single particular unit, credit has to be transferred
only to that unit only.
• Credit not to be transferred to a unit exclusively manufacturing exempted
goods/ providing exempted service.
• Credit attributable to more than one unit – distributed pro-rata on basis of
turnover of concerned unit to sum total of turnover of all units to which
service relates.
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66. Services Used by Banks
Source of Expenses Cenvatable / RCM Applicability
Directors sitting fees Cenvatable / under RCM if company / body corporate
Members fee Cenvatable
Rent, taxes, insurance and lighting expenses Cenvatable
Security Expenses Cenvatable
Law charges Cenvatable / under RCM
Postage and Telegram Expenses Cenvatable
Telephone charges Cenvatable
Auditor’s fees Cenvatable
Repair and maintenance of premises / ATM machines Cenvatable
Sweeping and cleaning charges Cenvatable
Loss from sale of or dealing with non-banking assets Cenvatable
Advertisement Cenvatable
Recovery Agent fees / commission Cenvatable / under RCM

68. THANK YOU
FOR
YOUR
PRECIOUS TIME
AND
ATTENTION
Dr. Sanjiv Agarwal, FCA, FCS
Agarwal Sanjiv & Company
Chartered Accountants
503, Gurukripa Tower, Mahaveer Marg,
C Scheme, Jaipur -302001
0141-2368071 / 2369250
asandco@gmail.com / sanjivservicetax@gmail.com
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