Service tax credit on - Capital goods service

[Guest]

We have manufacturer under SSI. We bought machinery from Excise Manufactuer and taken 50% cenvat on it in this year & will take 50% in next year. The manufactuer charged to us service tax on machine erection. Can we avail Cenvat of service tax 100% or 50% in this year & 50% in next year? Please suggest with notification or rule no. Regards. AYAJ

[CA Rachit Agarwal]

We can take credit for 100% of duty.

Erection of Machiniery come under the service tax rules and comes under the word "Input Services". 

As per Rule 2(l)The word input service includes "services utilized in relation to setting up, modernization, renovation.......".

Hence we are eligible to take credit for 100% of duty in the first year. Erectioning services does not come under the definition of capital goods.

[dinesh agrawal]

If you are a SSI unit, you may not be an excisable unit, then where is the question of availment of CENVAT credit?

AI Summary

Cenvat credit on input services: service tax on machinery erection is eligible for full credit, subject to SSI eligibility. Cenvat credit on service tax for machinery erection qualifies as credit for an input service under Rule 2(l), so the service tax charged for erection/setting up is eligible for full cenvat credit in the year the service is availed because erection services are not treated as capital goods. However, entitlement may be affected if the purchaser is an SSI unit that is not an excisable unit, so the purchaser's excisable status should be confirmed before claiming credit.