The finance ministry has come out with draft Cenvat credit rules, following the Budget decision to extend credit of input taxes across goods and services. The move will facilitate integration of tax on goods and services (GST).

The definition of inputs for services is almost the same as for goods. Credit would not be allowed on light diesel oil, high speed diesel oil, motor spirit and motor vehicles. Credit on motor vehicles would be allowed only to the service providers of courier, tour operator, rent-a-cab scheme operator and goods transport agency.

In principle, credit would be available on those taxable services that form a part of the assessable value on which excise is charged. This includes certain services that are received before production starts, but whose value will be absorbed in the value of goods.

In the case of services received after the goods are cleared from the factory, credit would be extended up to the stage of place of removal. Services like advertising, market research — which are not directly related to manufacture but are related to the sale of manufactured goods — would also qualify for credit.

Manufacturers making both exempted and non-exempted goods and not maintaining separate accounts would pay 9% of the price of exempted goods. A service provider of exempted and non-exempted services not maintaining separate accounts would pay 5% of the price of exempted services.

For specified services such as construction, erection, commissioning and installation credit would be disallowed only when they are used exclusively in relation to manufacture of exempted goods or services. Otherwise full credit would be allowed in the first year itself.