service tax input credit on construction on Rain Water Harvesting System

[RAM SHARMA]

Dear Experts,

Whether we can take service tax credit of construction Rain water harvesting System ? We have book this expenses in our accounts Building Under Construction head. Please advice.

Thanks & Regards

[Rajagopalan Ranganathan]

Sir,

According to 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 up to 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 up to the place of removal; but excludes,-

(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.

You have said construction of rain water harvesting system and I infer it is fresh construction. For this if you engage a contractor to execute the construction of the system only then you are eligible to avail the credit. If you engage such service for repairing etc., then you are eligible to take the credit.

[YAGAY andSUN]

Well, if it is Statutory Obligation then you may avail the CENVAT credit. Even maintaining Green Area in factory premises according to the Pollution Consent are eligible to avail the CENVAT credit.

[RAM SHARMA]

Dear Experts,

We have build this rain water harvesting system through execution a work contract and pay service tax 40% of value.

Yes, it is the legal requirement for the company.

Please clarify.

Thanks & Regards

[YAGAY andSUN]

If it is statutory obligation then you can avail the CENVAT credit.

[KASTURI SETHI]

I support the views of M/s. YAGAY AND SUN, experts.

[Ganeshan Kalyani]

I am also of the same views as expressed by my learned experts. Thanks.

[RAM SHARMA]

Thanks to all Experts, It means we can take service tax credit on Legal Requirement basis.

[Ganeshan Kalyani]

Yes, if the rain water harvesting is essential for a factory to get license under factories act. Like for eg without pollution control equipment in a factory, factory license cannot be obtained . Thus Cenvat Credit on pollution control equipment is eligible.

AI Summary

Cenvat credit eligibility for rainwater harvesting: statutory requirement allows input service credit despite works-contract exclusions. Availability of CENVAT input credit for construction of a rain water harvesting system depends on whether the service falls within the Cenvat Credit Rules' exclusions for construction and works contracts versus allowable input services; credit may be claimed where the work satisfies a statutory or licensing obligation or constitutes repair/modernisation or an allowable service rather than excluded construction.