service tax credit eligible on construction drawings-reg

[Ramakrishnan Seshadri]

Dear Sir,

We are constructing one new paintshop for our company. For this we have received invoice towards drawings for construction of this paintshop. They have charged service tax on their invoice. Our question is whether the service tax paid on this invoice is eligible for service tax credit.

Please clarify.

Thanks

S.Ramakrishnan

[Ganeshan Kalyani]

The credit is eligible

[Rajagopalan Ranganathan]

Sir

As per rule 2 (l) of CENVAT Credit Rules, 2004“input service” means any service, -

(i) used by a provider of output service for providing an output service; or

(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal,

and includes services used in relation to modernisation, 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 up to the place of removal. The above rule was inserted with effect from 1.4.2011 by notification no. 3/2011-CE(NT) dated 1.3.2011

Prior to 1.4.2011 the same rule was as follows: -

"input service" means any service,-

(i) used by a provider of taxable service for providing an output service; or

(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and ^[4][clearance of final products, up to the place of removal],

and includes services used in relation to setting up, 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, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation up to the place of removal.

Prior to 1.4.2011 credit of service tax paid services used for setting up of a factory or premises of output service provider was allowed as credit. But with effect from 1.4.2011 credit of allowable.service tax paid on services utilized for setting of factory or premises of output service provider is not allowable.

[Mahir S]

As you are constructing new paint shop, hence it means you had an old paint shop..Therefore, you are doing Modernization of the old plant.

Hence in such case, it appears service tax credit is eligible.

AI Summary

Service tax credit: input service definition limits credit for new factory set up but allows modernization related services. Credit eligibility depends on the CENVAT definition of input service: post 1 April 2011 the definition includes services for modernisation, renovation or repairs of factory or premises (creditable) but excludes services used for the setting up of a factory or premises of an output service provider (not creditable). Thus credit is available where drawings serve modernization/repair, but not where they relate to setting up new premises.