• Aug
  • 11
  • 2012

Note on Availability of Cenvat Credit- Real Estate Industry

Posted In Service Tax | , | 13 Comments » Print Friendly and PDF

CA Nikhil Jhanwar

After new regime in service tax has been introduced, there hves been various issues regarding availability of Cenvat Credit for Real Estate Industry. Through this write-up all major issues have been clarified specifically.

Issue 1: ‘Works Contract’ or ‘Construction of Complex’ as Input service. 

As per definition Of ‘Input Service’ under Rule 2(l) of Cenvat Credit Rules, 2004, credit of service tax paid in respect of following services (termed as ‘specified service’) can be availed and utilized only for paying service tax on such ‘specified services’:

(i)        Service portion in execution of works contract and Construction Services (includes Commercial or industrial construction service, maintenance or repair service)

(ii)       Construction of Complex Service including deemed construction service (as listed under Section 66E- Declared Service)

In simple terms,   the nature of input service and output service should be similar.

For example,

1.         A Builder is engaged in providing service of construction of building/flats. Further, the Builder sub-contracts the work of construction to another contractor. In this case Builder is providing output service of works contract/construction of complex service and at the same time availing input service of works contract from contractor. Therefore, the Builder can take the Cenvat Credit on input service and utilize the same in paying its tax liability only for works contract service, maintenance or repair or construction of complex service.

Issue 2: Other Input Services (other than works contract)

In case of other input services viz. Manpower supply, legal consultancy, telephone bills, GTA service(upto place of removal), banking or financial services etc. Credit can be taken on such ‘services’ if they are used in providing output service (in the present case: works contract/construction of complex service).

Issue 3: ‘Renting of Immovable Property’ (RoIP) as Output Service.

Without prejudice to above submission, Cenvat Credit of service tax paid on services of Works Contract, Construction of Complex Service, maintenance or repair service cannot be taken and used in paying service tax on ‘renting of immovable property service’ because these services are actually used in construction of immovable property and not directly used in provision of ‘RoIP’. Because, ‘Immovable property’ is neither a ‘good’ nor ‘service’ and cannot be taxed. Even Cenvat Credit Rules, 2004 does not allow to take credit in such situation read with Circular No. 98/1/2008 dated 04.01.2008.

Whereas, credit on other input services can validly be taken and utilized accordingly.

Issue 4: Availability of Cenvat Credit if abatement of 75% is taken.

In view of new law based on negative list and Notification No. 26/2012 dated 20.06.2012, where abatement of 75% is taken in case of ‘construction of complex service’, Credit of input services and capital goods used in providing out service (subject to conditions as per Issue 1 & Issue 2) can be taken and utilized for paying service tax on output service. But credit on inputs cannot be taken.

Issue 5: Availability of Cenvat Credit in case of reverse charge

In case where service tax has to be paid on reverse charge basis by service receiver, such service is treated as ‘input service’ for service receiver and irrespective of whether the whole amount of service tax is required to be paid by service receiver on reverse charge basis or not, the whole service tax paid by service receiver, whether paid to service provider or government directly, the whole Cenvat Credit of service tax paid shall be allowed. This is subject to general conditions prescribed under Issue 1 & Issue 2.

Issue 6: Claim of Cenvat Credit, whether on due basis or payment basis.       

As per Rule 4(7) of Cenvat Credit Rules, 2004, the Cenvat Credit in respect of input service shall be allowed on or after the day on which invoice or bill is received. (Earlier, it was allowed on payment basis).  This is subject to the condition that payment of value of input service and service tax shall be made within three months of the date of invoice or bill. If payment is not made within the prescribed period, then Cenvat Credit taken earlier on accrual basis shall be reversed and it can be taken back once payment is made.

Conclusion

Credit on Input Service Whether Credit can be taken against Output Service
Works Contract(Including Maintenance or Repair) Construction of Complex Renting of Immovable Property
Works Contract

Yes

Yes

No

Man Power Supply

Yes

Yes

Yes

Commission/Brokerage

Yes

Yes

Professionals/Legal Consultancy

Yes

Yes

Yes

Telephone Bills

Yes

Yes

Yes

Other Services

Yes

Yes

Yes

——————————-

CA Nikhil Jhanwar

ACA, ACS, B.com

+91-8860876960

nmjhanwar@gmail.com

Delhi-NCR


13 Responses to “Note on Availability of Cenvat Credit- Real Estate Industry”

  1. AMIT says:

    IN CASE OF BUILDERS, WE R PAYING SER TAX ON 25% OF RECEIPT. IS ANY CENVAT CREDIT AVAILABLE FOR INPUT SERVICES TAKEN FROM ARCHITECT?

  2. Mehul Hemani says:

    Dear Sir,

    One of my friend is in business of professional services, he has purchased office and builder has charged service tax on purchase of immovable property, can my friend calim cenvat credit against service tax payable by him on his professional services.

    regards
    Mehul

  3. Selvam says:

    I’m a builder, Can any one help me abt the basic prinicipals of taxation for buildres

  4. Selvam says:

    I, ma builder

  5. Nilesh says:

    Hello Sir,

    Please let me know, which services i will be use for taking cenvat credit against building of residential complex. Please clear me detail information.

    can i use CENVAT Credit of this services against Building of Residential Complex.
    1.Works Contracts
    2.Manpower Service
    3.Commission/Brokerage
    4.Professional/Consultancy/Legal
    5.Telephone Bills
    6.Travel Agencies
    Kindly send me reply as early as possible..

    Kind Regards
    Nilesh Deshmukh
    Sr. Executive – Taxation
    ABIL Group

  6. Raghavendra K says:

    Sir,

    We are builder and service tax payable on agreement on 33% of agreement value. And, we have given job work to construct building (Including Material). So contractor charges service tax @12.36%. My question is whether we can claim cenvat credit of service tax charged by contractor and and other service providers (Mainly Advertising agencies)?

  7. Nikhil Jhanwar says:

    L.K. Gajra Ji,

    W.e.f. 01.07.2012 service tax paid on labour charges is eligible as input service credit to Builder. There is no restriction on the same.

  8. Nikhil Jhanwar says:

    HI Yogendra

    Your query is not clear. In any case service tax paid on renting of immovable property used as input service for real estate is eligible for Cenvat Credit.

  9. L.K.GAJRA says:

    my client is a builder and service tax payable on agreement on 25% of agreement value. again this builder has given labour job work to construct building so labour contractor charges service tax @12.36% so my question is whether builder can claim cenvat credit of service tax charged by labour contractor in full or part ?

  10. yogndra bharadwaj says:

    rent received from ip and rent paid on ip wether we can take credit or not prime business real estate and media

  11. Arpit Patel says:

    Dear sir,
    Really nice.
    Further good clarification given for the Notification No.28/2012-Central
    Excise (N.T) dated 20th June 2012, vs. Notification No. 3/2011-Central Excise (N.T.) 01-03-2011

    Earlier Notification is vide enough to cover seven Specified services i.e Architect Services [Section 65(105)(p)],Port Services [Section 65(105)(zn)],Other Port Services [Section 65(105)(zzl)], Airport Services [Section 65(105)(zzm)],Commercial or Industrial Construction [Section 65(105)(zzq)], Construction of Residential Complex [Section 65(105)(zzzh)],Works Contract Service [Section 65(105)(zzzza)] WHICH IS NOT NOW…

  12. Nikhil Jhanwar says:

    Sir,

    There is difference between pure sale of immovable property and transfer of property in goods. Under Constitution Article 366(2A) what is deemed sale is transfer of property in goods and not in immovable property. Goods does not include immovable property.

    The view is correct.  

  13. R.L. PANDEY says:

    sir,

    I differ the opinion on 3 issue and by virtue of 46 amendment of Indian Constitution Immovable property involve in execution of works contract are deemed good and liable for tax under sates tax laws hence it not correct that immovable property is neither good nor service .

    Issue may please be examined a fresh and enlighten your border view on this.

    Regards

    R.L. PANDEY
    HYDERABAD

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