Service tax credit on making the new partition and cabins in existing factory

[Guest]

Dear Sir,

We have registered with excise and service tax as manufacturer. In our factory we made some modification in plant layout so we making some additional partition and cabina for staff members and installation the machine as per new plan. For this purpose we gove contract for this work and he give invoice with service tax as a work contract service.

My question is can we take the credit of this service tax ?

Regards

Swapneswar

[Rajagopalan Ranganathan]

Sir,

Rule 2 (k) 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 upto 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 upto the place of removal.

In my opinion the service received by you will be of modernization/renovation of your factory premises. Hence you are eligible to avail the credit of service tax paid on such service.

[ashish chaudhary]

You must be able to establish that the expenditure have been incurred for modernisation/renovation to take the credit. Credit for set up may not be allowed after specific omission of word "set up" from the definition of input service. If capitalised in the books of account, prima facie, department may take stand that it is for set up.

Proper clauses in agreement with contractor and invoice pattern could be basis for ascertainment whether same is for set-up or modernisation/renovation.

[YAGAY andSUN]

Nature of accounting treatment would decided the future of availment of CENVAT credit on this transaction.

[Mahir S]

Sir,

the work carried out dos not appear to fall either under renovation or modernization or setting up.

It is modification , as you have rightly said in your query.

Such modification has no relevance with manufacturing activity, hence it is advisable not to avail such input credit.

AI Summary

Service tax credit eligibility depends on classification as modernization/renovation rather than set-up; accounting treatment is decisive. Admissibility of service tax credit depends on whether contractor services for partitions, cabins and plant reconfiguration qualify as input service for modernisation/renovation of factory premises. Demonstrable evidence-accounting treatment, contract clauses and invoice description-must show the works are renovation/modernisation rather than a set up or unrelated modification, since capitalisation or documentation suggesting set up may negate the credit.