Query :We are a service provider engaged in providing engineering consulting services primarily to overseas clients and also clients in India. We were availing of Cenvat credit of the duty or service tax paid on inputs and input services and utilising the same against our domestic service tax liability. We claim refund of the unutilised credit against our export services. Our accountants have informed us that there has been an amendment in the Cenvat Credit Rule, 2004 under which service providers may not be able to adjust the Cenvat credit attributable towards exported services against their domestic tax liability but would be need to claim a refund of the entire credit. Please clarify.
Prior to the amendment in Rule 5 of Cenvat Credit Rules, 2004, a service provider exporting services was allowed to utilise the credit of inputs/input services used for provision of such exported service for payment of his service tax liability on domestic services. The balance unutilised Cenvat credit could be claimed as a refund.
Form 1 April 2012, the said rule has been amended in order to provide a simplified mechanism for refund of Cenvat credit attributable to exported goods or services. However, the revised rule is silent on the aspect of whether a service provider or manufacturer can first utilise Cenvat credit of inputs and input services attributable towards exported goods/services against domestic liability. It may be the case that such provision regarding adjustment of credit has been left out inadvertently since there appears no reason to deny such adjustment. It is, therefore, recommended that a clarification be sought from the Central board of excise and customs on this aspect.