CENVAT CREDIT ON REPAIRS TO OFFICIAL BUILDINGS

[hardik thacker]

CENVAT CREDIT ON REPAIRS TO FACTORY BUILDINGS

As per the definition of Input Service ( Rule 2(l) ), Input Service 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'

and excludes '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 - (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;'

from the above, 1. Can we avail the CENVAT credit on repairs to factory buildings which may comes under the category of works contract service.

[Rajagopalan Ranganathan]

Sir,

Rule 2 (l) of Cenvat Credit Rules, 2004 only excludes 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 -

(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.

In my opinion since you are undertaking repairs to factory buildings. service tax paid on the work contract service is available to you as credit

[Ganeshan Kalyani]

As per provision cenvat credit would not be available in respect of input / input service used for construction or execution of works contract of a building or civil structure or a part thereof. Credit would be available only where the contract amounts to works contract and the contract is otherwise than for building or civil structure. The queriest has mentioned about cenvat credit on repairs to factory building which is not in line with the above para as depicted from the provision and therefore I am of the view that cenvat credit is not eligible.

[Guest]

Dear Sir,

In my view if your work is related to Original work that means purely new construction then cenvat credit is not eligible. If this work is for repairs to Existing factory building than it is eligible for Cenvat Credit as renovation and repairs is covered in input service definition.

[Ganeshan Kalyani]

If it is only repair to factory building then it is covered in input definition but queriest has specified that the service is a works contract service and said service is in exclusion para as you can see in input definition as depicted in above post. thus credit is not eligible.

[Guest]

Dear kalyani Sir,

Yes i am agree with you but work contract can be for repairs and also for new construction.

So my opinion is if work contract for Repairs for building it is eligible

If Work contract is for new conduction it is not eligible

Please correct if i am wrong it should enrich my knowledge .

[KASTURI SETHI]

Dear Hardik Thacker Ji,

First of all we must know what is a factory. As per Section 2(e) of the Central Excise Act, 1944, “factory” means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on.

As per dictionary meaning, a factory or manufacturing plant is an industrial site, usually consisting of buildings and machinery, or more commonly a complex having several buildings, where workers manufacturegoods or operate machinesprocessing one product into another.

If we peruse both definitions in conjunction, it is very much clear that the term,'Factory' has wider meaning and it includes precincts (area of a building for manufacture of goods). Thus Rule 2(l) of the Credit Rulesexcludes the construction service/works contract service to a building and not to a factory. Hence Service Tax paid on works contract is eligible as input service credit and I go with Sh.Rajgopalan Ranganathan.

[DR.MARIAPPAN GOVINDARAJAN]

I also agree with the views of Shri Rajagopalan Ramanathan and Kasthuri Sethi.

[hardik thacker]

THANK YOU ALL RESPECTED EXPERTS FOR YOUR OPINIONS....

SPECIAL THANKS TO KASTURI SETHI SIR AND RAJGOPALAN SIR

[Ganeshan Kalyani]

Thanks Kasturi sir I am learning lot of things from you by way of reading your replies. I also go by Rajagopalan sir's view. Thanks.

[KASTURI SETHI]

Sh.Hardik Thacker Ji, Sh.Mariappan Govindarajan Ji, and Sh.Ganeshan Kalyani Ji,

Welcome, Sirs. You have liked and appreciated my reply. It is a reward for me. I am of the view that reward is not always in terms of money.

[Mahir S]

As per the exclusion clause of Rule 2 (l) of Input service definition, you are not eligible to avail the CENVAT Credit on repairs to factory buildings, when it comes under the category of Works contract nature.

The repairing activity of a factory relating to the service nature is only eligible as Input service.

[Ganeshan Kalyani]

Mahir sir view also seems correct as definition as reproduced in the initial post is very clearly stated. . Also factory is not mentioned in the exclusion list and only building is mentioned and the difference between factory and building is nicely explained by Kasturi sir as he usually does. Now I really enjoy to be a part of TMI and to participate in the discussion. by Simple reading of the definition the input credit is not allowed but on interpretation the credit is eligible. Mr. Hardik would be appreciate the contribution by experts and expect clarification.

[KASTURI SETHI]

Dear Ganeshan Kalyani Ji,

Our endeavour is to provide quality service to the assessee/querist in this forum. If any assessee or expert does not agree, we should not mind it at all. Everybody has right to express his/her opinion and knowledge. We learn from all experts. It is up to the querist whether to accept our reply or not. Ball is in the court of querist. Let him take final decision at his risk. Querist has liberty.

[KASTURI SETHI]

Sh.Ganesh Kalyanai Ji,

I am all praise for your thoughts like, "Now I really enjoy to be a part of TMI and participate in discussion." This is a sportsman spirit. Further I would like to emphasize that difference of opinion is no disregard to any expert. Sometimes two close friends differ on some issue and sometimes two judges of the same bench differ on the issue. Friendship does not mean always yes. Difference of opinion is not bad for society. Rather it is a thought provoking and creates curiosity to learn more.

[Mahir S]

Mr Ganeshan,

Your views dated 24.11.2015 appears to be correct on the issue.

[Ganeshan Kalyani]

Dear Kasturi Sir I have high regards to all the experts and respect their views as well. Five fingers are not same and same way views are ought to differ based on experience and knowledge. it is true that it is up to the queriest to decide to which reply he/she should pick up for implementation to resolve their issues. Thanks for all your support.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Sir, I have observed that you always post reply after thorough examination of the issue. In this way, not only I but all experts relish and enrich their knowledge. It is fact and not exaggeration.

[Ganeshan Kalyani]

Thanks Kasturi sir and Mahir sir for your support.

AI Summary

Cenvat credit on repair and renovation hinges on whether works are repairs to factory premises or construction of a building. Eligibility for CENVAT credit depends on Rule 2(l): input services include renovation, modernization or repairs of a factory or premises, but exclude the service portion of works contracts and construction services when used for construction/execution of a building or civil structure or for laying foundations or support structures; whether repairs to factory buildings qualify turns on whether the work is properly characterised as repair/renovation of factory premises (creditable) or as works contract/construction of a building/civil structure (excluded).