CENVAT CREDIT TAKEN ON SERVICE PROVIDE OUT SIDE

[SNEHAL SHAH]

Sir,

We have excise registration and Service tax registration & our product is enginering related product . So we are Manufacturing product and errected at Customer site through contract services .

Now problem is that contractor raised bill with service tax & we have awailed cenvat credit on this but in audit objection is that this errection activity is not your inside production premises so all service tax disallow and raised point & revesed with interest .

We had already pay service tax on errection servie provide to customer on Amount received from custiomer as a errection and commissioning charges , so please gude on which poing auditoer dissallow this .

Advance thanks .

Regards,

SNEHAL SHAH

 

[Surender Gupta]

Once it is found that Input services are used to provide output services, Cenvat Credit can not be denied if you have not paid the serivce tax on such output services under the claim of abatement notification.

It is not possible to guess that on what auditor has proposed to disallow this. Full details and information is required.

[r.rajkumar kumar]

The audit objection is correcst ,As manufaturing company the cenvat credist can be taken for the  purchase

or service related to manufacturing items. but this insulation of machinery difference contact between you and your

service provider it is notining related to manufacturing. hence it cannot be adjected as input .

[Vijay kumar]

It seems that you have sub-contracted the entire erection service to a contractor and he has rendered the service and paid the service tax. In such a case, it is the contractor who has rightly paid the service tax as the service provider and the service receiver i.e. your customer can avail the credit. There was no need for you to pay the service tax since you have not rendered any service in terms of Section 65 of the Finance Act. Only in case of partial sub-contracting you could have availed the input service credit of the tax paid by the sub-contractor since that would be input service for u for your output service.  In any case, the issue is revenue neutral but Department may not accept. The audit objection is legally sustainable in the light of Board Circular which specified that  credit is available for sub-contracted works which implies that contrary is not permissible. Hence, you may reverse the credit with interest and apply for refund of the tax paid by you, subject of course to Section 11B.

AI Summary

Cenvat credit limited when erection work is subcontracted outside factory and the assessee did not render the output service. Manufacturer availed Cenvat credit on contractor's service tax for erection at customer sites; auditor disallowed credit because the work occurred outside production premises and the manufacturer did not render the output service. Credit is allowable only where the service is used in manufacture or in relation to an output service rendered by the assessee; full subcontracting places tax liability on the contractor, while partial subcontracting may permit input credit where the assessee provides the output service. The recommended compliance step is reversal of credit with interest and pursuing refund under applicable procedures.