CENVAT Credit on machineries purchased from Civil Contractor as part of Contract

[Satheesh Shetty]

Dear Expert

If works Contract for building manafacturing Plant which include utility equipments, and taxes charged by the contractor is 4.94%,  & KVAT of Works Contract, Now can Manfacturere  take CENVAT Credit for Excise Duty on Equipment which will come from directly from the manafacturer of equipments. based on Consignee is marked as Clint Address and Bill to address is the contractor. Is there any risk to contractor as He is paying lower tax without taking CENVAT? 

[Guest]

Dear Mr Sauhetty,

In my opinion, you may avail the CENVAT credit in case your entity name has been mentioned as the consignee. In case any road permit is required then the road permit of your entity should be used.

The problem shall be from the sales tax point of view because in that case it shall become an identifiable and separate transaction and this transaction can not be covered under Works Contracts provisions where the goods part should  not be identifiable. You may keep these transactions out of the perview of the total work contract. In case the equipment suppllier is from other state then it shall become an E-1 sales and your contractor shall raise a separate commercial invoice on the manufacturing entity showing a lump sum figure including tax and the margins and there is no need to charge any tax etc. However in case the supplier is from within state then it shall bea  direct sales transactions and in that case the contractor has to invoice on you and charge  the full tax as per KVAT.

The contractor is paying lower tax will not have any bearing on your availing of full CENVAT credit so far as the excise is concerned but please take care of the VAT issue.

Thanks

S.R. Bansal

AI Summary

CENVAT credit entitlement hinges on consignee details and documentation; VAT treatment can alter works contract classification. CENVAT credit may be availed if the manufacturer is named as consignee and the manufacturer's road permit is used; the contractor's lower tax payment does not affect excise credit. Separately invoiced, identifiable equipment risks being treated as direct sales rather than part of a works contract, triggering different VAT consequences: inter state supplies involve an E 1 style commercial invoice from the contractor to the manufacturer, while intra state supplies require the contractor to invoice and charge KVAT.