Service tax credit

[RADHAKRISHNA KOPPARAPU]

Dear Members and professionals

 

We are constructing a Five star  Hotel and we may be starting the operation probably from 2013 jan onwards.

During the construction time we engage somany consultants(both indian and foreign)  and contractors and other people whoever required for completion of construction. We pay so much of service tax to them through their bills.

The question is can we accumulate  this service tax paid  during the period of construction and use that during operation of hotel against the liablity of service tax i.e, can we take Cenvat credit now and accumulate and carrie forward and utilise after commencing the operation.

 A clear clarification is solicited.

[YAGAY andSUN]

Dear Sir,

Construction of a building or a civil structure or a part thereof: - Not eligible if used for construction of a building or a civil structure or a part thereof, or laying of foundation or making of structures for support of capital goods. If the service is used for other purposes, e.g. finishing services, repair, alteration or restoration, these should be eligible.

Thanks and Best Regards,

 

Pradeep Khatri

 

[RADHAKRISHNA KOPPARAPU]

thanks Mr.pradeep for your clarification.

If you can give any case law reference or notification or circular reference it would have been more good.

 

anyhow thanks.

 

[YAGAY andSUN]

Dear Sir,

 

Kindly go through the CENVAT credit definition as amended in Budget ,2011.  You will find the answer.

 

Best Regards,

 

Pradeep Khatri

 

[NEERAJ KUMAR, RANCHI]

Yes you can take such credit accumulate it and pay when you are required to pay,  for this what you need is to get yourself registered with service tax. I believe you are talking about input service credit. In my view there is no problem and you are eligible for it as per provisions. What you are dealing in doesnot require laying of foundation for support of capital goods in fact it is applicanle for manufacturers of central excise. So I think you can go on.

[RADHAKRISHNA KOPPARAPU]

thank you neeraj

 

but  you are saying entirely opposite to Mr.pradeep clarification.

I am confused again. Mr.pradeep will reply to your answer if  i am right

[Surender Gupta]

If you read the meaning of Input services under rule 2(l) of the Cenvat Credit Rules, 2004 (as amended) you will find the restrictions imposed by the legislature on availing cenvat credit on construction activity.

Therefore, I agree with the views of Mr. Pradeep Khatri.

[NEERAJ KUMAR, RANCHI]

With due respect to all the experts I would like to mention that  you can take cenvat credit of the input services except the service  which are specified to be excluded in CENVAT credit rules 2, which includes architect, port services, works contracts etc. So I would differ from the advice of the these two learned experts, what they have told is correct but not in full.

[sv bhasker]

Sir ,  If I am not additing to your confusion, it appears to me that if u get your hotel constructed say by X,who is providing commercial or industrial complex service (zzq) to you and pays applicable service tax . In this case,you are not allowed credit because of the exclusion of input service (zzq) from the definition of input sevice and treating the said service as exempted service if abatement is claimed . However, if you construct hotel yourself with the help of other service providers like say man power suppliers and architect, you may be eligible for credit of service tax paid on man power supply , but not on architect service as it is excluded . So eligibilty depends on the nature of input service used.  Inclusive definition of input service, gives a clue  that services relating to(setting up deleted from (1.3.11 )  modernization , repair of the premises /office of the output service provider are eligible for credit.. Does one equate construction with setting up? and deny credit altogether. Any views please.

[RADHAKRISHNA KOPPARAPU]

Dear bhaskar

thanks for the reply. We are constructing the hotel on our own by appointing different contractors like civil,labour,iterior and consultants indigenous and foreign wherever it is required. We get bills from the above said contractors as well as consultants indigenous including service tax at applicable rate. And for foregin consultants we pay applicable service tax to government directly. And pl note that we reimburse certain expenses incurred by them for travel etc also to the both consultants. Is there any service tax liability on this also. I am getting different opinions, hence i put the matter here.

I think now it is clear to you and you may advise clearly what i can do.

[sv bhasker]

Reimbursement of travel expenses etc  paid to the service provider  are includable in the value of taxable service  for the purpose of taxation. Please read Rule 5 of Service Tax(Determination of Value) Rules,2006. In this case service provider is not acting as pure agent. 

Please see the following given under the said Rule. 

Illustration 2.– In the course of providing a taxable service, a service provider incurs costs such as 

traveling expenses, postage, telephone, etc., and may indicate these items separately on the invoice 

issued to the recipient of service. In such a case, the service provider is not acting as an agent of the 

recipient of service but procures such inputs or input service on his own account for providing the 

taxable service. Such expenses do not become reimbursable expenditure merely because they are 

indicated separately in the invoice issued by the service provider to the recipient of service

[RADHAKRISHNA KOPPARAPU]

Thanks Mr.Bhaskar

AI Summary

Cenvat credit on construction-related input services constrained; eligibility depends on statutory exclusions and value rules for reimbursements. Whether service tax paid during construction of a hotel can be taken as Cenvat credit and accumulated for later use depends on the nature of the services and statutory exclusions in the Cenvat Credit Rules. Services used for construction, foundations or structural support are not creditable, while finishing, repair or alteration services may qualify. Specified exclusions such as architect services, works contracts and certain commercial or industrial complex services (where abatement is claimed) bar credit. Reimbursed expenses paid to service providers are includable in taxable value and affect credit availability.