(1) An output service provider shall be allowed to take credit (hereinafter referred to as service tax credit) of the service tax paid on input service in the following manner, namely:-
Provided that the output service provider shall be allowed to take such credit, on or after the day on which he makes payment of the value of input service and the service tax paid or payable as indicated in invoice or bill or challan referred to in sub-rule (1) of rule 5.
(2) For the purposes of these rules, two services shall be deemed to be falling in the same category of taxable service, if the input service and output service fall in the same sub- clause of clause (105) of section 65 of the Act.
Provided that the taxable services defined in sub-clauses (zm) and (zp) of clause (105) of section 65 of the Act shall be deemed to be falling within the same category.
Illustration:
(i) A photography studio in course of providing photography services avails service of processing labs for developing and processing of exposed film and printing of photographs. In this case service provided, by the colour lab to photography studio and by the photography studio to a customer, both fall in the same category of service i.e. photography service. Therefore, photography studio is entitled to take credit of service tax paid by the processing lab.
(ii) A stevedore hires dock labour from the port trust and provides such labour to his client. In this case the service provided, by the port trust to stevedore and by stevedore to client, both fall in the category of port service. Therefore, stevedore is entitled to take credit of service tax paid by the port trust.
(iii) An advertising agency may avail services of a photography studio and/or a sound recording studio and/or a videotape production agency during the course of rendering service to its client. Service provided by the photography studio or the sound recording studio or the videotape production agency, as the case may be, does not fall in the category of advertising agency service. Therefore, advertising agency is not entitled to take credit of service tax paid by a photography studio or a sound recording studio or a videotape production agency.
(3) No service tax credit shall be allowed on input service received and consumed in relation to rendering of such output service which is either exempt from whole of the service tax leviable thereon or is not a taxable service, except in the circumstances mentioned in sub-rules (4) and (5).
(4) Where a service provider avails credit on any input service and renders such output services which are chargeable to service tax as well as exempted services or non taxable services, as the case may be, then the service provider shall maintain separate accounts for receipt and consumption of input service meant for consumption in relation to rendering of output services which are chargeable to service tax and the inputs service meant for consumption in relation to rendering of output services which are exempted services or non-taxable services, as the case may be. The service provider shall take credit only on that portion of input service, which is intended for use in relation to rendering output services, which are chargeable to service tax.
(5) In case the service provider, opts not to maintain separate accounts of input service meant for consumption in relation to rendering of such output services which are chargeable to service tax as well as exempted services or non-taxable services, he shall be allowed to utilize service tax credit for payment of service tax on any output service only to the extent of an amount not exceeding thirty-five per cent. of the amount of service tax payable on such output service.
(6) Service tax credit on the service provided in relation to telephone connection shall be allowed only in respect of such telephone connections which are installed in the premises from where output service is provided.