Service Tax on works contracts

[Pradeep Jain]

Sir,

In case of Work Contract of repairs and maintenance , need to pay service tax on 70% value of the contract and ST on 30% value of the service.

However do we need to reverse the CENVAT credit of inputs used in providing the service on the remainin 30 % value of the Goods as above, used in that services.

Regards

Pradeep Jain

[KASTURI SETHI]

As per Explanation 2 of Rule 2 A of Service Tax Determination of value of service portion in execution of works contract (Notification No.24/12-ST dated 6.6.12) Cenvat Credit cannot be taken. Therefore, question of reversal credit on remaining value of 30% of goods does not arise.

[yateen vyas]

Credit cant be taken in service portion of works contract if it is 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

Construction or execution of works contract of a building or a civil structure or a part thereof; or

If it is used for repair and maintenance of machine which is further used in manufacturing of exciseble goods than why cenvat will not allowed in my view it will be allowed.

AI Summary

Cenvat credit denial for service portion of works contracts; reversal of credit not required under Explanation 2. Cenvat credit cannot be availed for the service portion of a works contract as the valuation rules treat that component as a taxable service; therefore there is no obligation to reverse credit attributable to that service portion. A contrary point of view highlights that credit is excluded where inputs are used for construction or foundational works, while repair and maintenance of machinery used in manufacturing may present a distinct factual scenario for creditability.