Availment of Cenvat credit on taxable Inputs service tax paid regarding construction of residential complex and commercial complex.

[samiuddin ansari]

Sir,

My friend is engaged in the business of construction of residential complex and commercial complexes and accordingly got himself registered under Service Tax in the last year. His firm is also availing cenvat credit of service tax paid of input services used in the construction work. Out of total 62 residential blocks, he obtained completion certificate for 30 blocks from the competent authority of municipal corporation. Meantime, the audit team of the excise department undertook audit of the financial records and ST-3 of his firm. During the course of audit, the audit team asked him to deposit the service tax on advances received from the prospective buyers before completion of the said blocks sold with interest and reverse the cenvat credit availed on input services used in remaining under construction blocks.

Your valuable suggestion and guidance is required as first time service tax audit is being done to my firm.

Thanks With regards

Sami Ansari.

[Himansu Sekhar]

After completion certificate is obtained not sold or non booked houses which are completed are exempted from paying Stax. Claiming proportionate credit reversal is correct.

[KASTURI SETHI]

Date of advance taken is the point of taxation.ST became due from the date of advance. Audit is right. Exemption is available only if whole consideration is received after the completion certificate or first occupannce of house, whichever is earlier.

[KASTURI SETHI]

In pre-GST era, credit on specified services such as architect services, site preparation services, engineering services, GTA Services etc. was allowed and not on material.

AI Summary

Point of taxation: advances received before completion trigger service tax liability and may require Cenvat credit reversal. Service tax on advances becomes due at the point of taxation when consideration is received before completion; auditors may require deposit of tax with interest and proportionate reversal of Cenvat credit for units still under construction. Exemption for completed unsold units applies only if full consideration is received after the completion certificate or first occupation, otherwise advance-based tax liability and credit reversal obligations arise. Creditability pre-GST extended to specified input services, not materials.