CA. Sanjeev Singhal

[Definition of Input Services under Rule 2(l) of CENVAT Credit Rules , 2004 commentary on above definition with case laws Instances on Input Services]

 RULE 2(l) : Input Services

 “Input Service” means any service,-

(i) used by a provider of output service for providing an output service; or

(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products, up to the place of removal, and includes services used in relation to modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage up to the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation up to the place of removal; but excludes,-

(A) service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for –

(a) construction or execution of works contract of a building or a civil structure or a part thereof; or

(b) laying of foundation or making of structures for support of capital goods,  except for the provision of one or more of the specified services; or

(B) Services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or

(BA) Service of general insurance business, servicing, repair and maintenance , in so far as they relate to a motor vehicle which is not a capital goods, except when used by

(a) a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person ;or

(b) an insurance company in respect of a motor vehicle insured or reinsured by such person; or

(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee;

S.N.PartyExtract of Input definition w.e.f 1.7.2012
1Manufacturer of final productInput service means any service used by used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products, up to the place of removal, Specific Inclusion :a) services used in relation to modernization, renovation or repairs of a factory or an office relating to such factory or premisesb) Advertisement or sale promotionc) Market research

d) storage up to the place of removal

e) procurement of input

f) accounting , auditing, financing, recruitment, and quality control,

coaching and training, computer networking, , credit rating,, share registry, , security, business exhibition, legal services, inward transportation of input or capital goods and outward transportation  up to the place of removal

2Provider of output serviceInput service means any service used by provider of output service for providing an output service;a) services used in relation to modernization, renovation or repairs of a premises of provider of output service or an office relating to such premises.b) Advertisement or sale promotionc) Market research

f) accounting , auditing, financing, recruitment, and quality control,

coaching and training, computer networking, , credit rating,, share registry,  security, business exhibition, legal services, inward transportation of input or capital goods.

3Specific exclusions;(A) service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for -(a) construction or execution of works contract of a building or a civil structure or a part thereof; or(b) laying of foundation or making of structures for support of capital goods,

except for the provision of one or more of the specified

services;

or

(B) Services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or

(BA) Service of general insurance business, servicing, repair and maintenance , in so far as they relate to a motor vehicle which is not a capital goods, except when used by –

(a) a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person ;or
(b) an insurance company in respect of a motor vehicle insured or reinsured by such person; or

(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee;

Meaning of “Includes”

The inclusive part of the definition cover input services used ‘ in relation to’ various activities. Definition are ‘inclusive’ or ‘exhaustive’. If the definition use the world ‘means’ it means that its restrictive and exhaustive. However if the word ‘includes’ is used in the definition it means that it is not exhaustive but inclusive. CCE v. Bakelite Hylam

Meaning ‘in relation to’

The word in relation to is very broad expression  and are word of comprehensiveness which might have both a direct or indirect significance depending on the context. They are not the word of restrictive content. State of karnataka v. Azad Coach Builders.

Place of removal

CENVAT credit is available for input service up to place of removal. The concept of removal is borrowed from central excise and hence applies to only manufacturer and not service provider.

The term ‘ place of removal’ has not been defined in CENVAT  Credit Rules but is defined in  Section 4 (3)(c ) of central excise act as follows :

‘Place of removal’ means

i)  A factory or any other place or premises of production or manufacture of the excisable goods.

ii) A warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty.

iii) a depot or premises of consignment agent or any other pace or premises from where the excisable goods are to be sold after their clearance from the factory,

from where such goods are removed.

The word ‘from where such goods are removed” apply to all the three clauses.

DSCL Sugar v. CCE, MP biscuit v. CCE

The place where ownership gets transferred to buyer is place of removal when there is direct sale from factory

Normally factory gate is place of removal. But in case of Ambuja Cements v. UOI [ Punjab and Haryana High Court][2009] it was decided that if the freight charges form part of the assessable value, price is  for destination,

Port is place of removal in case of export  

Kuntal Granites v. CCE [2007] , CCE v. Adani Pharmachem[2009]

Rajasthan spinning and weaving mills v. CCE [ 2007]

Expenses up to the place of removal are eligible for Cenvat. Centuary Ryon v. CCE [2012]

Services specially excluded from definition of ‘Input Services’

Some services have been specifically excluded from the definition of ‘input services’

Construction related services specifically excluded under clause (A)

(A) service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66E of the Finance Act (hereinafter referred as specified services) in so far as they are used for –

(a) construction or execution of works contract of a building or a civil structure or a part thereof; or

(b) laying of foundation or making of structures for support of capital goods,

Are excluded from the definition of ‘input services’

However these services are eligible as input services if used for the provision of one or more the specified services ( i.e construction/work contract of building or structure or laying of foundation etc as above)

♦  Services relating to setting up are not eligible ;

Broadly , services relating to setting  up  of unit are not allowed.

♦ Structural components which are essential part of equipment / machinery are eligible for Cenvat credit.

♦˜  Renting of motor vehicle specifically excluded under clause (B)

The term motor vehicle has not been defined in the Cenvat Credit Rules , 2004 . As per Central Excise motor vehicles are  covered under chapter 87 of the Central Excise Tariff . Some vehicle (e.g. forklift truck , excavators ) require registration under motor vehicle act , but they fall under chapter 84 of Central Excise Tariff. Goods falling under chapter 84 are eligible for Cenvat credit as capital goods . Hence , insurance, repair services , renting etc. in respect of such  vehicle should be eligible for Cenvat credit.

˜ ♦ Motor vehicle insurance and repair and maintenance services specifically excluded under clause (BA)

The clause as amended w.e.f 1.7.2012 is as follows;

Service of general insurance business, repair and maintenance , in so far as they relate to motor vehicle which is not capital goods will not be eligible for Cenvat credit except when used by (a) a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person ;or (b) an insurance company in respect of a motor vehicle insured or reinsured by such person; or

Services for personal use or consumption of employees specifically excluded under clause (C).

Services such as outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession have been specifically excluded from the definition of input services.

However, this exclusion is only when such services are used primarily for personal use or consumption of any employee. Like mobile phone to employee for business purpose is allowed. Club membership fees of director who is not employee should be eligible. Corporate club membership [ without any name of employee] shall be eligible .

Meaning of ‘such as’    the exclusion clause uses the word ‘such as’ . The world such as are used  only to illustrate the scope. It is not restrictive. Such as means for ‘example’

CCE v. JK Cement Works [2009], TTK Pharma Ltd v. CCE [ 1993]

Eligibility of Various Services as Input Services

Accounting ServicesEligible as specifically included in definition
Advertisement [ may be recruitment , tender, sales promotion , legal notice etc.]Eligible as specifically included in definition
Air travel of employeeEligible if in relation to inclusive services mention in 2( l )
Airport servicesEligible if in relation to inclusive services mention in 2( l ). The services is also eligible in case of construction or work contracts services or port or airport services.
Architect ServicesNot eligible if provided for  services specifically excluded under clause A of 2(l).If the service is used for other purpose shall i.e. finishing services , repair, alteration, or restoration , these should be eligible. The services is also eligible to person providing construction or work contract service itself.
Auditing ServicesEligible as specifically included in definition
Authorised Service StationUsually not eligible except the clause BA of 2(l)
BankingEligible under financing
Beauty treatmentNot eligible
Brand AmbassadorsEligible as relating to Sales Promotion
Business exhibitionEligible as specifically included in definition
Business Support ServicesEligible if related to inclusive part of definition
Canteen  ExpensesEligible as provided in recent circulars/ notification.
Clearing and forwarding agentEligible for input and for final product up to the place of removal.
Club membership Not eligible
Commercial coaching and trainingEligible as specifically included in definition
Commission agentEligible as relating to sales promotion or procurement
Computer networkingEligible as specifically included in definition
Consignment agent expEligible as consignment agent place is place of removal when sale is from depot
Construction of building or civil structure or part thereofNot eligible if provided for  services specifically excluded under clause A of 2(l).If the service is used for other purpose shall i.e. finishing services , repair, alteration, or restoration , these should be eligible. The services is also eligible to person providing construction or work contract service itself.
Construction of residential projectNot eligible if provided for  services specifically excluded under clause A of 2(l).If the service is used for other purpose shall i.e. finishing services , repair, alteration, or restoration , these should be eligible. The services is also eligible to person providing construction or work contract service itself.
Consulting engineers managementEligible if for definition of  rule 2(l)
CourierEligible
Credit ratingEligible as specifically included in definition
Custom house agentEligible for procurement of input and also for export as port is place of removal
Depot expensesEligible as depot is place of removal
Director ServicesEligible as director control overall operation
Erection commissioning and installationNot eligible as setting up of plant but eligible as modernisation, renovation of factory
Financing ( bank charges, lease, hire purchase)Eligible as specifically included in definition
Foundation or support of capital goodsSpecifically excluded
GardeningEligible if done as statutory requirement
Insurance of plant and machinery, building and transportation of input, capital goods and final product up to the place of removalEligible
Insurance of Motor vehicleIneligible except a] where vehicle is eligible as capital assets b] manufacturer of motor vehicle c] general insurance company
Health insuranceIneligible
Information technology softwareeligible if in relation to manufacture of taxable goods/ services and all services under the inclusive list.
Intellectual property serviceeligible if in relation to manufacture of taxable goods/ services, quality control, sales promotion , computer networking
Job workeligible if in relation to manufacture of taxable goods/ services and all services under the inclusive list.
Legal consultancyEligible as specifically included in definition
Maintenance and repaireligible if in relation to manufacture of taxable goods/ services, modernisation and repair of factory or office, storage, quality control except where motor vehicle is not capital goods
Mandap keeperEligible if in relation to recruitment, accounts, audit, sales promotion ,procurement of input, legal services, financing and computer networking
Manpower recruitment and supplyeligible if in relation to manufacture of taxable goods/ services and all services under the inclusive list.
Market researchEligible as specifically included in definition
Mobile phone [ even if in the name of employee but reimbursed by employer]Eligible
Outward transportationEligible up to the place of removal
Real agent servicesIneligible
Renting of immovable propertyeligible if in relation to manufacture of taxable goods/ services and all services under the inclusive list.
Setting of plant and office buildingIneligible
Showroom expensesEligible as sale promotion
SoftwareEligible if in relation to manufacture of taxable goods/ services and all services under the inclusive list.
Supply of tangible goods for use serviceeligible if in relation to manufacture of taxable goods/ services and all services under the inclusive list except for motor vehicle .
Transportation charges for employeesIneligible
Travel by air , road, or water except by motor vehicleEligible
Work contract serviceNot eligible if provided for  services specifically excluded under clause A of 2(l).If the service is used for other purpose shall i.e. finishing services , repair, alteration, or restoration , these should be eligible. The services is also eligible to person providing construction or work contract service itself.

Read Other Article written By CA. Sanjeev Singhal, FCA, DISA [ ICAI]

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33 responses to “CENVAT Credit on Input Services”

  1. ramarao sabba says:

    hi sir,
    we are in hotel industry. can we avail svt input on cable subscription 957913/- INR.

  2. rama says:

    We are into recruitment (man power supply) but registered as Management consultancy services. What are input tax credits applicable

  3. Ajay A Sheth says:

    we want to build a warehouse and want to give on rent. whether we are eligible to take service tax received during construction of warehouse. against my liability of service tax on rent.

  4. Ruby gupta says:

    sir, we are a steel manufacturer, can we take credit of service tax paid on insurance of 4 wheeler?
    Please reply

  5. Ankur says:

    i need to know whether input credit available from construction of another premises whose production (service tax leviable) is yet to start can be availed for set off or not. Although nature of business shall remain same.

  6. RUCHI says:

    Dear Sir,

    Can we claiming cenvat credit of 3.62% which we paid with each installment to builder (Private) against our booking.

    Please suggest……

  7. PIYUSH BANSAL says:

    WHAT IS THE TIME LIMIT FOR CLAIMING CENVAT CREDIT ON INPUT SERVICES ?

  8. rahul says:

    can service tax credit carried forward under operating lease? plz reply soon

  9. rahul says:

    can service tax credit carried forward?

  10. Jignesh says:

    Sir, we are pvt co paying service tax on abated value as service receiver under GTA, are we eligible to claim cenvat credit of the same after paying the service tax on 30% of value of freight.

    As transportation is eligible input service to claim cenvat credit but I have doubt as I am paying tax on abated value, is I am eligible to claim cenvat credit for the same.

  11. Hussein amreliwala says:

    How to claim credit if assessee is a seller of goods as well as provider of taxable services . Can he get 100% input credit on services like phone bills, audit fees etc.

  12. nishchal says:

    Yes, as specifically included

  13. nishchal says:

    Yes, as specifically included.

  14. Name says:

    Respected Sanjeev Singhal Sir,
    What is difference between On Input and on input service received Directly in Return ?
    Thanks & Regards,
    Sonu Aggarwal

  15. Raguveer Singh says:

    We want to know availability of cenvat of service tax paid on erection and commissioning of new project

  16. ram prajapat says:

    sir,
    whether cenvat credit of service tax paid on courier, telephone bill, private security agency can be taken

  17. ram prajapat says:

    we are in business of furniture manufacture..i would like to know whether service tax paid for air ticket eligible for cenvat credit

  18. Prashant says:

    Whether Service tax charge by Industrial Development corporation towards lease payment on plot alloted. can we take cenvat credit of the same?

  19. sai says:

    on courier services input tax credit can be taken while coming to telephone bills i bills are in the name of company then only input tax credit can be taken if they are in the name of employees they comes under employees reimbursement i.e employees benifits where ineligibility incurrs

  20. sai says:

    on goods hire services input tax credit can be taken when hire is for employees only can’t be taken

  21. padma says:

    Dear sir,
    Whether service tax of courier bill, telephone bill, service tax paid to private security agency, police security can be taken as CENVAT credit?
    Can be deducted from the service tax payable?
    if so, please inform in which rule of CENVAT and section?
    thanks and regards

  22. Alpesh patel says:

    Dear Sir,

    We are a soft drink manufacturing company and wanted to know if we can enjoy CENVAT credit for the service tax portion of advertisement expenses of the final product incurred on television etc.

    Kindly let us know if any case laws are present for the same.

    Thanks

  23. manoj says:

    We (Pvt. Ltd. company) are in the business of Residential Building Construction. I would like to know whether service tax charge of courier company, telephone bill, can be taken as cenvat credit. Thanks –

  24. shailendra Barad says:

    Dear Sir,

    In currently our company EA-2000 aduit for period Dec-14 To Jaan-15. Auditoer objection for Gardening Service is disallow because of our company premises two type of gardening activities one of our plant area and second is our colony area.In colony area not taken in cenvat credit but plant area i have taken cenvat credit.

    Please suggest me in plant area gardening service service tax credit taken or not ?

    Regards
    Shailendar Barad
    M.No.8347771707

  25. Saiprasad says:

    Whether Club membership of Companies eligible for input service tax credit?

  26. Narayanan K R says:

    Pls confirm “setting up” definition wef 01.04.2011 removed under input credit of services – h/ever scn made on this setting up while we have availed input credit for all input services viz. GTA/Security/computer net working/SAP implementation etc./maint&repair/erection etc. before commencement of commercial production & clearance – not availed input credit civil construction, architect’s consultancy services,motor vehicle etc.while setting up of our factory constructed – is there any case law available or any other new industry faced any cases on this issues and what is the present status esp at Gujarat

  27. mohamed riyas says:

    for our clearfication that whether input on service tax are claim transport charges on good hire service

  28. Kamatchi v says:

    Micro soft software eligible to avail the service Tax credit or not

  29. Kamatchi v says:

    Dear sir,

    Micro soft software eligible to availe the service tax input credit

  30. Vivek Khakhkhar says:

    Dear Sir,

    I need your advice that can a company avail service tax input credit on bank charges paid for export remittance?

  31. Sandeep says:

    Sir, As per my understanding, works contract is per se excluded from the purview of input service. am I correct?

  32. Prasenjit says:

    We (Pvt. Ltd. company) are in the business of Residential Building Construction. I would like to know whether service tax charge of credit rating agency can be taken as cenvat credit.
    Thanks

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