Input credit on service tax for hotels under construction

[Soumya P Rao]

We have a 5 star hotel being constructed at Goa. We receive services from professional and architects both domestic and abroad. As of now, there are no output services. Can we take the input credit of the service tax payable on these payments and settle it during the actual payment. Is there any restrictions for hotels or hotels under construction. If so, for how many years can we carry forward the ST input credit.

[DR.MARIAPPAN GOVINDARAJAN]

Input Service tax credit can be utilized against the payment of service tax for the services rendered or the excise duty for the manufacturing of goods. The credit can be availed within six months from the date of the bill.

[Sumeet Tholle]

Sir,

Namaste.

Definition of “input service” (after 01/04/2011): -

Rule2(l) “input service” means any service, -

1. used by a provider of ²⁶[output service] for providing an output service; or
2. used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,

and includes services used in relation to 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 upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal;

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 -

1. construction or execution of works contract of a building or a civil structure or a part  thereof; or
2. laying of foundation or making of structures for support of capital goods, except for the provision of one or more of the specified services;

B) services provided by way of renting of a motor vehicle, in so far as they relate to a motor vehicle which is not a capital goods; or

BA) service of general insurance business, servicing, repair and maintenance , in so far as they relate to a motor vehicle which is not a capital goods, except when used by -

1. a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person ; or
2. an insurance company in respect of a motor vehicle insured or reinsured by such person; or

C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee;”

Sumeet C. Tholle

C.A.

[Mahir S]

Sir,

such credit falls under the category of 'setting up' and hence not eligible for input cenvat credit.

[Soumya P Rao]

Where is it mentioned that input credit is not available on "setting up" activities? Could you quote the provision or rule please..

[Mahir S]

Mr. Rao,

Service provided for construction of factory (which is called setting up of factory) was omitted from the definition of "input service" with effect from 01.04.2011 vide Notification No. 3/2011-CE (NT) dated 01.03.2011.

Availment of input service credit for setting up of factory was available prior to 01.04.2011.

AI Summary

Input service tax credit restricted: credits for construction 'setting up' disallowed after amendment under service tax law. Input service credit may be used against service tax or excise and must be availed within six months of the bill. The definition of input service includes many services used to provide output services but expressly excludes services in execution of works contracts and construction of buildings or civil structures; services constituting setting up were removed from the definition by a subsequent amendment, rendering construction-related credits ineligible thereafter.