This article deals with accounting of service tax, availment and utilization of service tax input credit in the books of account in line with the accepted accounting practices citing the references in the statutory provisions in service tax Regulations. An attempt has been made to suggest the accounting of service tax input credit with gross method vis-a-vis the net method suggested for Cenvat on inputs by Institute of Chartered Accountants of India in the Guidance Note on Cenvat issued in September 2000.

Service tax is an indirect tax on the value of the services rendered in respect of specified taxable services. The levy of service tax was introduced in the year 1994 bringing a few services into the taxable net by including Sections 64 to 96 in the Finance Act, 1994. Till now there is no separate enactment for service tax but still it is being governed by the provisions (Section 65 to 96) of Chapter V of the Finance Act, 1994 as amended. Now, the scope of the service tax has been extended to more than 90 services including the services proposed in the latest Union Budget, 2006.

The scheme of input credit (similar to Cenvat) is introduced in the case of service tax also in the year 2002 by introducing the service tax Credit Rules, 2002. In September, 2004, the Cenvat Credit Rules, 2004 has been issued in supersession of service tax Rules, 2002 and Cenvat Credit Rules, 2002 giving scope for availment of Cenvat across the goods and services. So the availment and utilization of service tax input credit is now being governed by Cenvat Credit Rules, 2004 with effect from Septemer 10, 2006

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