Input service credit - FOR BUILDERS

[hubert fernandes]

We are Builders / developers and provide service under declared service ie complex construction. we avail input service credit on service tax paid on input services.At the end of a particular project and after obtaining completion certificate there are some flats unsold which when sold will not attract service tax .whether the credit availed earlier on input services needs to be reversed for such unsold flats and if so under which rule or provisions OR we can fully avail such credit and utilise it for other real estate projects

[Mehul Pandya]

Though, Service tax will not be payable on unsold flats, Rule 6 of cenvat credit Rules will surely apply. Proportionate reversal of Cenvat Credit relating to unsold flats will be required. In my view, if such reversal is made immediately after obtaining completion certificate, otherwise interest will apply.

[hubert fernandes]

But Rule 6 is a machinery provision and invoked only when you are providing taxable as well as exempted service. whether selling of inventory flats amounts to exempted service?

[Mehul Pandya]

Payment of amount or proportionate reversal of Cenvat Credit would be required if assessee avails cenvat credit of some common input or input services

AI Summary

Cenvat credit reversal required when builders leave unsold flats post-completion, requiring proportionate adjustment and potential interest.
Builders who avail input service credit on input services for complex construction must undertake proportionate reversal of credit relating to unsold flats that, after project completion, are not subject to service tax. The Cenvat mechanistic provisions require reversal or payment in respect of common inputs and input services when outputs become non-taxable; reversal should be effected on or immediately after the completion certificate, failing which interest may apply.