CBEC has issued a master circular no. Circular No. 96/7/2007-ST dated the 23rd August, 2007 to clarify various issues.

Now this circular has been amended vide Circular No. 98/1/2008-ST dated 4/1/2008 to clarify more issues.

On of such issue was as under:

Whether cenvat credit of commercial or industrial construction service or works contract service used for construction of an immovable property, could be treated as input service for the output service namely renting of immovable property service under the CENVAT Credit Rules, 2004.

Now the CBEC clarified the issue as under:

Right to use immovable property is leviable to service tax under renting of immovable property service.

Commercial or industrial construction service or works contract service is an input service for the output namely immovable property. Immovable property is neither subjected to central excise duty nor to service tax.

Input credit of service tax can be taken only if the output is a 'service' liable to service tax or a 'goods' liable to excise duty. Since immovable property is neither 'service' or 'goods' as referred to above, input credit cannot be taken.

Cenvat credit denial for construction inputs: credit unavailable where immovable property is not treated as service or goods. The right to use immovable property is leviable under renting of immovable property service, and construction or works contract services are inputs for the immovable property; however, because immovable property is neither a taxable service nor goods subject to excise, input Cenvat credit for those construction-related services cannot be availed under the CENVAT Credit Rules.