Provisions for availing Input credit

[K Balasubramanian]

We are rendering commercial and industrial construction services. Out of 10 contracts, in respect of 6 contracts service tax is paid on 100% value. In respect of 4 contracts, we avail 67% abatement (based on notification 01/2006). What are the restrictions on availing input credit from 01/03/2006?. Please explain in detail as to whether we should avail only the credits which are directly identifiable in respect of 6 contracts or we should avail input credit on a pro rata basis.

[Surender Gupta]

You have various options in Cenvat Credit either to avail 100% credit on cetain input services, or upto 20% of out put service tax. Which option is best option is to be determined on the basis of actual analyis of facts and circumstances.

[Madhukar N Hiregange]

for the 100% payment of service tax you are eligible for credits as under: Capital goods- used for provding taxable servcies. Once the same are used for taxable servcies the use of the same in my view for those where 67% exemption is availed SHOULD be available considering the intemtion of leigislature. However the Not1/2006 states that the exemption is not available if credit availed. This is defintie demand.Therefore on CG used commonly there would be a dispute. - Inputs - Those used for services where 100% tax paid would be available. The records for receipt for those projects as well as usage would have to be clear. - INput services - those used exclusively for 100% ST paid projects - those used for exempted projects not available. - those used commonly ( 16 enumrated - see Rule 6) -100% available - those used commonly ( other than 16 specified -only to extent used. Costing certificates may provide the break up b/w thsoe used for 100% ST paid and other. Though not asked please examien the possibility of using Not.12/2003 instead of 1/2006. You may find that is preferable.

AI Summary

Input credit eligibility guides allocation between fully taxable and abated construction services, requiring records or costing for apportionment.
Availability of input credit after 01/03/2006 depends on whether service tax is paid in full or abatement is availed. Full credit is claimable for capital goods, inputs and input services used for fully taxed contracts with documentary proof. Items used exclusively for abated or exempt services are ineligible. Commonly used items require differentiation: certain specified common categories may receive full credit, while other common items must be apportioned and supported by records or costing certificates to claim credit only to the extent of use for taxable services.