Input service credit

[Asked by Guest]

Dear Sir,

If we avail a work contract service for installation of machine and we paid service tax is it eligible for cenvat credit under input service ?

[Ganeshan Kalyani]

Yes the service tax credit of the service tax charge in the invoice by service provider and the service tax paid under reverse charge both are eligible for credit.

Dear Kalyani Sir,

This bill raised for making construction structure for install the machinery Hence it is eligible ?

In Input Definition Exclude the service under 4(A)(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 connection this definition i think that it is not eligible so please guide me .

[KASTURI SETHI]

Sh.Swapneswar Mudulli Ji,

Sh.Ganeshan Kalyani in his reply dated 27.11.15 has rightly advised you in respect of your query 109459 dated 27.11.15.

Regarding the exclusion clause, it is second and separate question. You will have to go through the definition and meaning of word, 'Foundation' 'Structure' etc. and case laws on this issue. There is a plethora of judgments on this exclusion clause and decision can be arrived at after going through those case laws. Usage and functions of capital goods have to be kept in mind for ascertaining the admissibility of cenvat credit. If you want specific and to the point reply, elaborate your query.

[Ganeshan Kalyani]

Dear Swapneswarji, the subject under discussion is like a see-saw. If you justify yourself before authority you are winner of taking credit if you cannot defend your point you loose the game. For the installation of machinery a strong support structure is required on which the machinery can stand erect properly and can function effectively. without support structure a machinery cannot start function and the machinery is useless. Therefore the credit is rightly eligible. There are plethora of case law supporting the contention. this is my view.

[KASTURI SETHI]

I agree with Sh.Ganeshan Kalyani Sir. Beautifully explained. Now nothing has been left untouched.

[YAGAY and SUN]

Dear Swapneswar,

To validate the replies submitted by our learned friends, please go through the following judgment in this connection.

Regards,

YAGAY and SUN

(Management, Business and Indirect Taxation consultants)

2014 (7) TMI 881 - MADRAS HIGH COURT

The Commissioner of Central Excise & Service Tax versus M/s. India Cements Ltd.

Cenvat Credit - capital goods - structural steel items viz., M.S.Plates, Angles, Channels and HR Sheets used for civil construction activity - Held that:- This Court in the case of India Cements Limited [2011 (8) TMI 399 - MADRAS HIGH COURT] applied the principles laid down in the decision of Commissioner of Central Excise Jaipur V. Rajasthan Spinning & Weaving Mills Ltd. [2010 (7) TMI 12 - SUPREME COURT OF INDIA] and held that the Tribunal was justified in allowing the assessee's contention in respect of the very same assessee. - credit allowed - decided in favor of assessee.

[DR.MARIAPPAN GOVINDARAJAN]

A fine discussion on the subject matter by our learned experts.

[KASTURI SETHI]

Ms.YAGAY and SUN,

Dear Sirs,

Thanks for posting the judgement in support of our views.

[KASTURI SETHI]

Sh.Mariappan Govindarajan Ji,

Sir, Thanks for your liking the discussion and appreciating the same.

[Ganeshan Kalyani]

Appreciation is a boost and it encourages to contribute more and more whereby making TMI a best platform for both queriest and experts.

[Mahir S]

Sir,

I feel the query is related to availment of input service credit under works contract service, whereas the replies and case law furnished pertains to input cenvat credit and capital goods credit.

[Mahir S]

Shri Swapneswar Muduliji,

Rule 2 (l) of Cenvat Credit Rules, 2004 defines the definition of "input Services".

However, the said definition excludes "service portion in the execution of a works contract and construction services including service listed under clause (b) of section 66 E 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."

Therefore, input service credit cannot be availed if the works contract service has been used for construction of building/laying foundation or making structure for support of capital goods.

To go a step further, even service tax paid on works contract or construction service used for additions, alterations, replacements or remodelling of foundation or structures for support of capital goods is not allowable.

[Ganeshan Kalyani]

my reply dated 27.11.2015 & 28.11.2015 pertains to reply for service tax credit. Further in few instances i have come across that even case laws pertaining to cenvat and capital cenvat credit are well accepted by department to allow credit of service tax. However we would be more honoured if you present your views in substantiating your stand. thanks

AI Summary

Input service credit: eligibility for works-contract construction supporting machinery hinges on whether the service is an excluded construction portion.
Admissibility of service tax credit for a works contract to build supports for machinery turns on whether the service is an excluded construction/works-contract portion used for laying foundations or making structures for support of capital goods; if so, the input service definition bars credit. Competing submissions argue that integral support works enabling a capital machine to function may be ancillary and creditable, while the statutory exclusion and related case law preclude credit when the service constitutes construction or foundation work.