Construction of new factory and input service tax credit

[govindaraj kolappan]

Dear Sirs / Madam

We are an export unit

going for expansion of factory building

the construction contract is given to a builder

Builder is charging service tax @ 40% of the construction value @14.5%

Question : whether this service tax credit can be taken as input credit of other out put services performed within India

if not , whether we can apply for refund against the export to be made out of the new factory

Kindly give your views

With regards

[YAGAY andSUN]

Dear Govindaraj Kolappan

The phrase Setting Up of Factory had been removed long back w.e.f. 2011 from the CENVAT Credit Rules, 2004 as amended from time to time. Hence, no refund or CENVAT credit on such services would be available. This will form the part of CIVIL Construction and on Gross value on depreciation would be available under section 32 of the Income tax Act.

Regards,

YAGAY and SUN

(Management, Business and Indirect Tax Consultants)

[DR.MARIAPPAN GOVINDARAJAN]

You cannot take credit and also cannot get refund as opined by Yagay and Sun.

[CS RAHUL AGARWAL]

Whereas CCR 2004 restricts the cenvat credit of input & input services used in construction activity, still there as so many judgements wherein appellate authority have held eligibility of credit of construction activity. The recent case on above may be referred in 2016 (2) TMI 417 - CESTAT MUMBAI Nirlon Ltd. Versus Commissioner of Central Excise, Mumbai. What significance does exclusion clause in CCR have in light of such judgements ?

[KASTURI SETHI]

Despite this judgement of CESTAT,Mumbai availment of credit on this issue is prone to litigation. I endorse the views of M/s.YAGAY AND SUN, Sirs and SH.MARIAPPAN GOVINDARAJAN, Sir.

[DR.MARIAPPAN GOVINDARAJAN]

Please see the disputed period in the case law cited by CS Rahul Agarwal is between April 2007 to March 2009.

[KASTURI SETHI]

SH.MARIAPPAN GOVINDARAJAN JI,

Yes, Sir. Period is always very crucial. Moreover, facts and circumstances of each are not always the same. Mostly these differ and one has to be very careful and alert while apply any judgment.

[Ganeshan Kalyani]

Works contract service is a favourite subject for the department. They attack the said service first when they come for audit. Of course the amount involved is considerably high which attracts the attention of the auditor. Hence it is always advisable not to take credit when it is not defined in the Cenvat credit rules. Thanks.

AI Summary

Cenvat credit on factory construction: generally not available and refund claims carry high litigation risk. The discussion concludes that service tax on factory construction is generally not eligible for Cenvat/input service credit nor refund for exports because construction charges are treated as civil construction and addressed through depreciation; although some appellate decisions have allowed credit for specific past periods, such precedents are period- and fact-specific and claims carry substantial litigation risk, so conservative practice advises against availing credit or seeking refund when Cenvat rules do not expressly permit it.