QUESTION

Whether credit of service tax paid on the rent of showroom premises of a car manufacturer can be availed by the authorised service station of the same maufacturer, rather same company, providing the service from a seperate premises for which also service tax on the rent is being paid and credit being availed. The case relates to year 2016-17. Whether value of other activities like sale of cars/ spare parts will fall under definition of exempted services for the purpose of Rule 6 of Cenvat Credit Rules, 2004?

ANSWER
 

We have understood your question as follows:

 A dealer (say Vipul motors) of the car manufacturer  (say Maruti) has a showroom in Market A and the same dealer also has a Service Center at some other premises. Now the question is whether the credit of Service Tax on the rental of Showroom can be availed for utilizing it to pay Service Tax on the services provided by the Service Center.

Reply:
 

It is assumed that for both the premises the Service Tax Registration Number is same because during the Service Tax regime there was provision of Centralized Registration. So the credit of Service Tax paid on the rent of the showroom can be utilized by the Service Center.

You have rightly mentioned Rule 6 of CENVAT Credit Rules, 2004.  Rule 6 relates to "Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services". It put restrictions on availing credit if the services or inputs are used for providing exempted service or nontaxable services. The activities of the dealership (sale & purchase) of car is a trading activity which is exempted through Section 66D as follows:-

The negative list shall comprise of the following services, namely:

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(e) trading of goods

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Since the rent is paid for the premises of the showroom and showroom is used for trading activities which are exempted by virtue of Clause (e) of Section 66D. Therefore the credit of Service Tax of rent of Showroom will be disallowed. Since the credit is not available (disallowed) therefore question of using it does not arise. (Reply dt. 15/03/2021)