service tax set off against civil contstruction

[Asked by Guest]

we are manufacturer of excisable goods. we have received purchase order under works contracts for Civil Construction works. we have completed civil construction works through another vendor. we have received Civil Construction bill with charging service tax.

Can we utilize this service tax amount against payment of excise duty?

[Rajagopalan Ranganathan]

Sir,

Manufacturing excisable goods and undertaking civil construction work are two independent stream of business. Therefore service tax paid by you in respect of civil construction cannot be utilized for payment of excise duty on your manufactured products. This is my opinion.

[Ganeshan Kalyani]

The input should have been used in or in relation to manufacturing of excisable goods, then only the credit on the input becomes eligible subject to conditions. Hence the credit in your case is not eligible.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Sir, Will you please like to go through Rule 2(k) (B) of Cenvat Credit Rules, 2004 especially the clause below ((a) and (b) " except for the provision of service portion-------------------------clause (b) of Section 66 E of the Act." ? I think it is worth reading before arriving at final opinion.

Pl. respond back for enrichment of my knowledge. With bundles of thanks.

[Rajagopalan Ranganathan]

Sir,

The question is whether a manufacturer of excisable goods who undertakes works contract for civil construction work executed by another person on behalf of the manufacturer can avail the credit of service tax paid on the services provided by the another person. In my opinion service tax paid for the work contract service is in no way connected with the manufacturing of excisable goods by manufacturer.

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 upto the place of removal.

In view of the above since the works contract service is not utilised in relation to manufacture of excisable goods, service tax paid on works contract service (even if it is on service portion) is not available as credit.

Moreover setting up of a factory is excluded from the inclusive definition of input service under rule 2 (l) of Cenvat Credit Rules, 2004. Therefore as already expressed by me the service tax paid in respect of works contract service for civil construction is not eligible as credit.

 

[KASTURI SETHI]

Sh.Rajagopalan Ranganathan Ji

Thanks a million Sir. Now I fully agree with you and Sh.Ganeshan Kalyani Sir.

[KASTURI SETHI]

Sir,

Whenever any expert (including me) after posting reply to a query, writes 'it is my opinion', I infer that such words either put a question mark on 100% accuracy of reply or the issue is debatable.

[Ganeshan Kalyani]

Thanks Kasturi Sir. Sir I have observed that there is sea of case laws. And on one particular issue there is favourable case law as well as unfavourable. Therefore it becomes essential for us to mention as 'in my opinion' in the reply.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

I am convinced with your reasoning on"in my opinion". To express views on controversial issue is an acid test for an expert and hence it is fantastic.

AI Summary

Cenvat credit ineligibility: service tax on civil construction not usable against excise as not linked to manufacture.
Service tax paid on works contract or civil construction executed by a third party is not available as Cenvat credit against excise duty because such services were not used "in or in relation to" manufacture and clearance of final products; the definition of input service under the Cenvat Credit Rules excludes setting up of a factory and standalone civil construction, so service tax on those works is ineligible for credit.