Reverse Mechanism

[Samik Chaudhuri]

I would like to know whether we can avail Cenvat Credit of Service Tax against Works Contact (Manufacturing Unit) paid by recipient as well as provider. Please inform me at earliest.

With thanks

Samik

[Mahir S]

Sir,

The definition of Input service itself excludes any inuts relating to Works contract and hence input credit would not be available. The relevant provisions are as under:

Exclusion clause of Section 2(l)(ii) of Cenvat Credit Rules states as under:

[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

[Ashutosh Gupta]

As per ST laws, one can avail credit of RCM paid whether as a provider of service or receiver of service. There is no bar on that part.

AI Summary

Cenvat credit exclusion for works contracts limits input service credit; RCM-paid service tax may nonetheless be claimed. Input service exclusion removes the service portion of works contracts and construction services from Cenvat credit when used for construction or execution of buildings or for laying foundations or support structures for capital goods, except where the activity constitutes specified services. Separately, credit of service tax paid under the reverse charge mechanism may be availed by the person who pays the tax, whether provider or receiver.