SERVICE TAX INPUT CREDIT

[chandrashekhar bathini]

Respected sir,

a Andrapradesh company paying service tax on construction activity @ 14.5% on 30% value of contract(cannot differentiate material and service portion),

it purchasing inputs (cement, steel ,sand etc) in steel purchases invoice contains excise duty ,shall i get excise duty as input against output service tax

[KASTURI SETHI]

Sh.Chandrashekhar Bathini Ji,

Since you are availing abatement of 70% from the gross amount charged, you cannot avail cenvat credit on the inputs in terms of Notification No.26/12-ST dated 20.6.12 as amended.

[Vijay kumar]

Please refer to Rule 2A of the Service Tax Valuation Rules, 2006 which governs the valuation in respect of Works Contract Service. Explanation 2 to the said Rule reads as follows:

Explanation 2.--For the removal of doubts, it is clarified that the provider of taxable service shall not take CENVAT credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions ofCENVAT Credit Rules, 2004.]

Accordingly, you cannot avail the credit of excise duty paid on inputs. The logic is that material value is abated from the taxable value and when value of material is not included, the question of allowing credit thereon does not arise.

Also, please check - if it is original works, you should be paying tax on 40%, otherwise on 70% of the total value, in terms of the above cited rule. It is not clear as to how you are paying tax on 30% value.

[KASTURI SETHI]

SH.Vijay Kumar Ji,

Yes Sir. I fully agree with your views. I think he is paying ST on 30 % in terms of Notification No.9/13-ST dated 8.5.2013.

[CSSANJAY MALHOTRA]

Respected Sh Kasturi ji & Mr. Vijay,

Agreed with both of you. Perfectly answered.

[Rajagopalan Ranganathan]

Sir,

Under clause (A) of Sub-rule (ii) of rule 2A of Service Tax (Determination of Value) Rules, 2006 it is laid down that in case of works contracts entered into for execution of original works, service tax shall be payable on forty per cent. of the total amount charged for the works contract.

Notification No. 26/2012-dated 20.6.2012 (with effect from 1.7.2012) as amended vide Sl. No. 12 which is indicated as under: -

[12.	Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly, except where entire consideration is received after issuance of completion certificate by the competent authority,- (a) for a residential unit satisfying both the following conditions, namely:- (i) the carpet area of the unit is less than 2000 square feet; and (ii) the amount charged for the unit is less than rupees one crore;	25	(i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004; (ii) The value of land is included in the amount charged from the service receiver.]
	(b) for other than the (a) above.	30

 

In my opinion the exemption Notification give more abatement than that given in the Valuation Rules. Here Chandrasekhar Sir has availed Sl. No 12 (b) of the exemption Notification since the works contract executed by him is other than construction of residential unit.

[KASTURI SETHI]

Sh.Rajagopalan Ranganathan Ji,

Sir, I am of the view that Rules are to be read in conjunction with Notifications on the subject. If carpet is more than 2000 Square feet and amount charged is more than one crore, that residential building would also be covered under the category (b) attracting ST @ 30%. Do you agree ? Sir. Just for knowledge sake.Thanks.

[Ganeshan Kalyani]

Sri Kasturi Sir I agree with reply.

[chandrashekhar bathini]

Thank you very much sir all those who gave answer for my question.

[Rajagopalan Ranganathan]

Dear Kasthuri Sir,

I agree with your reply. If the carpet area is more than 2000 sq. ft. and the value of the residential unit is more than 1 crore it will fall under clause (b) of Sl. No. 12 of the exemption notification and service tax is to be paid on 70% of the gross value charged by the contractor.

[KASTURI SETHI]

Sh.Rajagopalan Ranganathan Ji,

Thanks a lot Sir. Your views have cleared my doubts.

[YAGAY and SUN]

The elite force of experts is providing to-the-point replies/solution to the queries of queries. That's the spirit.

[KASTURI SETHI]

Thanks a tonne to M/s.YAGAY AND SUN for appreciating the replies of experts. It is your sportsman spirit.

AI Summary

Cenvat credit denial where works contract supplier avails abatement for material value, excise duty on inputs not creditable.
Where a works contract provider avails statutory abatement that excludes material value from the taxable service, Explanation 2 to Rule 2A of the Service Tax Valuation Rules prohibits taking CENVAT credit of duties or cess paid on inputs used in relation to that works contract; the material value being excluded from taxable value negates entitlement to credit on such inputs, and valuation rules and exemption notifications must be read together to fix the appropriate taxable base.