Service Tax cenvat avail on A/c installation in shop floor

[Guest]

Dear Sir,

We are a automobile manufacturing company & in this year we have installed new air conditioner in our shop floor for workers & also work related to sealing and partation in shop floor.

Now our supplier raised invoice & charges service tax on 50% of invoice value.

Sir, can we avail service tax cenvat on this service.

[Ganeshan Kalyani]

Sir, the CENVAT credit is eligible. I would request to clarify why the service provider has charged service tax on half of the value of invoice. Awaiting clarification. Thanks.

[KASTURI SETHI]

Service Tax is on service and not on the full or half value of invoice.Installation charges may be 500 or 1000 and not more than that. It is a case of pure labour. It cannot be under Works Contract Service. You can take the credit on only installation charges and not on any other amount.

[Ganeshan Kalyani]

Sir, so we should assume that 50% is only the service portion in the invoice which is why the service provider has charged service tax on the said portion. The rest would be material cost. Thanks.

[Akash Deep]

Dear Sir,

Service tax has to be charged on 50% of the invoice value if the service provider is an individual, HUF or partnership firm and service receiver is a body corporate. I assume that supplier of AC has also installed the same and raised a combined invoice, and thus transaction becomes a works contracts as defined under 65B (52). If this is the situation, Service provider has rightly charged service tax on 50% of invoice value (this is the portion of tax which service provider is supposed to pay to the central government and est 50% shall be paid by service receiver). Rest 50% shall be paid by you. (read your company).

It may be noted that even in case of works contracts, what is taxable under Finance Act, 1994 is the service portion in execution of works contract. i would say, technically (it may sound hyper technical) it incorrect to say "works contract service". works contract is neither goods nor service. it is hybrid of both and distinct from both. Its altogether separate class in itself. For service tax purposes what is relevant is the "service portion in execution of works contract" and not works contract as a whole.

if two separate bills has been raised, one fore supply of AC and other for installation of AC, here two distinct transaction are happening. one is of sale of goods and other is rendering of service. Service tax can never be levied on a transaction of sale of goods, as being a subject of tax to be levied and collected by state government under 7th Schedule List II of Constitution. Now as the installation services are pure services, company need not to pay tax under reverse charge. In this scenario service provider would be charging tax on 100% of invoice value.

Coming to the issue of availability of credit, it may be noted that for manufacturer, primarily, credit is available of any services used whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up-to the place of removal subject to certain exceptions.

Service portion in execution of works contract has been excluded from definition of "input service"

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

It is very clear from above that your case is not falling under exclusion.

Credit will be available to you, subject to the condition that your company would qualify as manufacturer or producer.

[Akash Deep]

Dear All,

Please ignore the reply posted. It has certain basic flaws regarding understanding of the works contracts in the context of service tax. This has been posted by my trainiee junior, as a training exercise. Excuse him for his in-experience. Hope seniors would take this a an step in learning. My apologies for inconvenience caused.

Correct reply would follow.

[Ganeshan Kalyani]

Dear Akash Ji, your replies are appreciable in all terms. I read your reply word by word. It enriches my knowledge. Thanks.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Barring this mistake which is committed by Sh.Akash Deep's trainee, I virtually also consider Sh.Akash Deep Ji, a gem.

AI Summary

Cenvat credit availability for installation services used in manufacturing, subject to manufacturer status and exclusion rules. Cenvat credit is available to a manufacturer for service tax paid on installation services used in or in relation to manufacture, provided the company qualifies as a manufacturer and the services do not fall within the exclusion for the service portion in execution of works contracts related to buildings, civil structures or foundations. Whether service tax is charged on a portion of the invoice depends on invoice separation versus combined works contract billing; where supply and installation are distinct, installation is a taxable service eligible for credit.