Cenvat credit of service tax

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

04 November 2014 There is 1 real estate company and they paid commission Rs 100000 for agent in respect of sale its flats and service tax on commission of Rs 12360 . My Question is can this real estate company book the cenvat credit of above service tax ? please also give recent reference or link of related case law

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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05 November 2014 The main business of the real estate company is "Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly". The commission and service tax thereon was paid for performance of this taxable output service. There is a Rule that to avail of CENVAT Credit and utilize the same to pay duty liability, the assessee should pay full duty and not avail of any exemption / abatement. From 1st July 2012 the service tax regime moved to Negative List i.e. any service not enumerated in the Negative List was subject to service tax. Entry (12) of Notification 26/2012 dated 20th June 2012 (it was subsequently amended, but the amendment makes no difference to the reply to this query)permits the following service provider to pay tax at 25% of the Service Tax Liability. "Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority" subject to two conditions:

"(i) CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004.

(ii)The value of land is included in the amount charged from the service receiver."

I am sure the real estate company would have availed of the abatement and would be paying service tax @ 25%/30% (amendment)of the service tax liability and not the whole 12.36%. HENCE THE REAL ESTATE COMPANY CANNOT AVAIL OF CENVAT CREDIT AND UTILIZE THE SAME TO PAY OFF SERVICE TAX LIABILITY.

Querist : Anonymous

Querist : Anonymous (Querist)

05 November 2014 thanks for your reply sir but you are talking about cenvat credit of input(excise duty on input) but i am talking about cenvat credit of service tax which paid on commission to broker. my question is can real estate take the service tax credit paid on commission for paying its service tax liability

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Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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07 November 2014 The CENVAT Credit Rules 2004 were made under the Central Excise Act. The provisions regarding applicability to service tax was added subsequently. The rules always read "Credit on input goods used for production of goods or input services used for production of taxable goods or taxable services". There is no CENVAT Credit Rules for Service Tax separately and it is the CENVAT Credit Rules 2004 (as amended) passed under the Central Excise Act, which is applicable to both Central Excise Act and Finance Act, 1994 (as amended)[Service Tax]. I hope the mater is clear now. As such since the output taxable service of the realty company is construction of residential or commercial units for sale, all services utilized in rendering of the output service (on which abatement has been availed) CANNOT BE CLAIMED. From your query it appears that the realty company is rendering only one taxable output service and that is construction of residential and commercial units for sale. The next assumption would automatically flow, that the commission was paid either to purchase land and other materials for the construction activity or it was paid for arranging customers to purchase the flats / units. If the commission was paid for some other purpose, it has not resulted in any other taxable service, and hence, the same service tax paid would not qualify as input for the construction service.

I hope I have been able to clarify your doubt.