Cenvat Credit - input service - commercial or industrial construction services - construction of factory building

[Ramachandran and Ramachandran Associates Subramanian]

1. The assessee is a manufacturer of products chargeable to Central Excise Duty. The assessee avails CENVAT credit on capital goods, inputs and input services under the applicable provisions of Cenvat Credit Rule, 2004. 1. During 2008-09 and 2009-10 period, the assessee availed the construction service from contractors on which service tax had been paid and on the basis of invoices issued by the providers of commercial or industrial construction service/works contract service, had taken service tax credit. The construction service availed was for construction of factory buildings in the factory premises. 2. Taking a view that credit of input services can be taken only if the output is service liable to service tax or goods liable to excise duty and since in this case the outcome of the construction activity is immovable property, which is neither service nor goods, the input credit in respect of construction service is not available, a show cause notice was issued to the assessee for recovery of allegedly wrongly taken service tax credit under Rule 14 of the Cenvat Credit Rules, 2004 read with proviso to Section 11A (1) and Section 11AB of the Central Excise Act, 1944 and also for imposition of penalty under Rule 15 of the Cenvat Credit Rule, 2004 read with Section 11AC of the Central Excise Act, 19444. Is the department view correct ? The definition of input service includes all services in relation to setting up of a factory. Are there any decided case laws on this specific issue ?

AI Summary

Debate on CENVAT credit eligibility for service tax on factory construction under CENVAT Credit Rules, 2004. The discussion focuses on whether CENVAT credit is available for service tax paid on construction services used for building factory premises. The issue arises from a show cause notice issued to a manufacturer who claimed such credit, arguing that the construction of factory buildings qualifies as an input service under CENVAT Credit Rules, 2004. Respondents in the forum support the manufacturer's position, citing case law that recognizes construction services related to setting up a factory as eligible for CENVAT credit, despite the department's view that the outcome, being immovable property, does not qualify.