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 |
Author Bio
A builder has been paying service tax after availing exemption of 75% and availing Cenvat Credit on Inputs and Input Service. Please let me know whether he can do that simultaneously.
Sir
A builder get rent from immovable property & charge GST on & also the builder construct residential construction for that he purchase material & take service of different person & pay GST on that.In that case he can take input tax credit againt renting of immovable property?
Hello Sir,
I have a following specific query:
“Whether a builder, who provides service of construction of complex can avail the input tax credit of GST paid on works contract service received by him?”
The query has arose because,
section 17(5)(c) provides;
works contract services when supplied for construction of an immovable
property (other than plant and machinery) except where it is an input service for further
supply of works contract service;
However, rate schedule provides that
Construction of a complex, building, civil structure or a part thereof, intended for sale to a buyer, wholly or partly [The value of land is included in the amount charged from the service recipient].– Chargeable at 12% With Full ITC but no refund of overflow of ITC.
I believe that construction of building or complex service is different from works contract service as construction service involves land while works contract service does not involve the same.
Dear sir,
we are builders and we are in 75% abatement scheme. we have purchased upvc window.it is including lavourcharges.In our excise invoices they collected excise duty. So shall we take it as Cenvat credit in service tax. could you please suggest me?
Very useful
IN CASE OF BUILDERS, WE R PAYING SER TAX ON 25% OF RECEIPT. IS ANY CENVAT CREDIT AVAILABLE FOR INPUT SERVICES TAKEN FROM ARCHITECT?
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
I’m a builder, Can any one help me abt the basic prinicipals of taxation for buildres
I, ma builder
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
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)?
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.
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.
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 ?
rent received from ip and rent paid on ip wether we can take credit or not prime business real estate and media
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…
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.
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