INPUT SERVICE WORKS CONTRACT

[george thomas]

Dear Sir/Madam

We are registered with Service Tax under the Category of providing output service for the following category

1.Hotel Accommodation (S.65(105)(zzzzw) 2. Restaurant Service ( ( S.65(105) (zzzzv)

Apart fro the above ,we are also liable to pay Service Tax as Service Recipient for the following category

1.Manpower Supply ( 100% 2.Works Contract ( 50%) 3.Security Service (100%)

We are availing input service credit also for the service tax paid under Reverse Charge

Now the Department is objecting input service credit aviled and utilized for Works contract ( Service Portion ( service tax paid for Labour,Carpender ,Interior Decoration service etc ) for the construction of Hotel and its maintenance

Kindly clarify credit of Works Contract is eligible for us

[Mahir S]

George ji,

The views taken by the Department appears to be correct in view of the definition of the Input Service under Rule 2 (l) of Cenvat Credit Rules, 2004.

[Rajagopalan Ranganathan]

sir,

Prior to 1.4.2011 the definition of "input service" was "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, upto 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 upto the place of removal;”

This definition was amended with effect from1.4.2011 by Notification No. 03/2011-CE (NT) dated 1.3.2011 9with effect fron 1.4.2011) as “input service” means any service, -

(i) used by a provider of ²⁶[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; ²⁷[but excludes],-

²⁸[(A) 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; or]

²⁰[(B) services provided by way of renting of a motor vehicle], in so far as they relate to a motor vehicle which is not a capital goods; or

²¹[(BA) service of general insurance business, servicing, repair and maintenance , in so far as they relate to a motor vehicle which is not a capital goods, except when used by -

(a) a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by such person ; or

(b) an insurance company in respect of a motor vehicle insured or reinsured by such person; or]

(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee;”

The word 'setting up' was omitted with effect from 1.4.2011. Therefore the Department objects your taking credit of service tax paid by you under RCM on works contract service.

AI Summary

Input service credit exclusion: works-contract service portions for construction or maintenance of buildings are ineligible for credit. The amended definition of 'input service' excludes the service portion in execution of works contracts and construction services insofar as they are used for construction or execution of a building, or for laying foundations or supporting structures. Accordingly, service tax paid under RCM for the service component of works contracts used in constructing or maintaining the hotel does not qualify as eligible input service credit.