R&D Cess & Service Tax

Notification No.18/2002 dt.16.12.2002 exempts service tax on “Consulting Engineer Service” to the extent of R&D Cess payable under Research & Development Cess Act, 1986

Notification No.17/2004 dt.10.09.2004 exempts service tax on “Intellectual Property Service” to the extent of R&D Cess payable under Research & Development Cess Act, 1986

In both the above cases R&D Cess payable is 5% and hence service tax payable is 5.3% (10.3% - 5%)

There were quiet a number of interpretations as to when this R&D cess is payable in specific reference to service tax liability as payment of R&D cess reduces service tax liability as per the above mentioned notifications.

To put to rest all speculations the following 2 Notifications were issued

1. Notification No.46/2011 dated 19.9.2011 for “Consulting Engineer Service” and

2. Notification No.47/2011 dated 19.9.2011 for “Intellectual Property Service”

As per the above 2 notifications service tax is reduced to the extent of R&D cess only if the following conditions are satisfied.

• R&D Cess is paid within 6 months of booking of invoice

• R&D Cess is paid within 6 months of date of credit in books in case of associated companies

• In any case R&D Cess should be paid before payment for the service

In short R&D Cess has to be paid within 6 months & before payment of service charge to get exemption for service tax.