Gist Of Cenvat Credit On Construction Service

Shruti Agrawal

1. INTRODUCTION: The Cenvat Credit Rules 2004 provides for availment of credit of excise duty paid on inputs and capital goods and service tax paid on input services. But a real estate developer/builder opts benefit of Notification No. 26/2012-ST dated 20.06.2012 then builder/developer can avail credit of excise duty paid on capital goods and service tax paid on input services i.e. can not avail credit of excise duty paid on inputs. The said provision is effective from 01.07.2012. Prior to 01.07.2012, as per notification No. 01/2006-ST dated 01.03.2006 builder/developer are not permit to avail credit of excise duty paid on inputs and capital goods and service tax paid on input services.

a. Capital Goods : As per Rule 2(a) of CCR Rules 2004, “capital goods” means:-

(A) the following goods, namely:-

(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No. 68.05 grinding wheels and the like, and parts thereof falling under heading 6804 of the First Schedule to the Excise Tariff Act;

(ii) pollution control equipment;

(iii) components, spares and accessories of the goods specified at (i) and

(iv) moulds and dies, jigs and fixtures;

(v) refractories and refractory materials;

(vi) tubes and pipes and fittings thereof; and

(vii) storage tank,used-

(1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or

(2) for providing output service;

(B) motor vehicle registered in the name of provider of output service for providing taxable service as specified in sub-clauses (f), (n), (o), (zr), (zzp), (zzt) and (zzw) of clause (105) of section 65 of the Finance Act

b. Input Services: As per Rule 2(i) of CCR Rules 2004 “input service” means any service,:-

(i) used by a provider of taxable 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 setting up, 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, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal.

2. Availment of credit of service tax under reverse charge- In certain cases, like manpower supply services, works contract services etc. if the service provider is an individual, partnership firms, AOP and the services receiver is a body corporate, then service tax is partially payable by service provider and partially by service receiver.

a. Credit of service tax paid by service provider: The service receiver is entitled to avail the credit of service tax on input services on receipt of invoice received by him. As per Rule 4(7) of Cenvat Credit Rules, service receiver has to pay the invoice within 3 months. If not paid then service receiver has to reverse the credit already availed, which can be taken as re credit when amount is paid.

b. Credit of service tax paid under reverse charge: Prior 11.07.2014, as per provision of Rule 4(7) of Cenvat Credit Rules, the Service receipent can take credit when he paid the value of taxable service to provider and service tax to Government authorities. W.E.F. 11.07.2014 now credit can be availed when receiver pay his liability of service tax to government.

Note: As per newly added proviso in rule 4(7) effective from 01.09.2014, credit must be taken within 6 months of the date of invoice or the date of challan as the case may be.

For e.g. (a)A manpower supply service is availed by an assesse. Service provider issues a bill dated 5^th Sep 2014 for Rs. 1031 (Rs 1000 towards value of service + RS. 31 ST @ 12.36% on 25% value). Service Receiver can avail the credit of Rs. 31 as he receive the invoice and payment is made within 3 Months.

(b) The Service receiver’s service tax portion Rs. 92 (i.e 1000 * 12.36% * 75%). Service Receiver can avail credit of this Rs. 92 when he paid the amount to government.

3. Surrender/ Cancellation of booking by customer: e.f. 01.07.2010 investment amount of investor shall be treated as consideration paid in advance for the construction service to be provided by the builder/developer to the investor and the said amount would be subject to service tax. If the investor decides to exit from the project at a later date, either before or after the issuance of completion certificate, the builder/developer would be entitled to take credit under Rule 6(3) of Service tax Rules, 1994 to the extent he has refunded the original amount. If the builder/developer re-sells the flat before the issuance of completion certificate, again tax liability would arise.

(Author can be reached at  shrutiagrawalindia@gmail.com)