Input service credit in case of construction of hotel
This query is : Resolved
05 April 2013
Dear All
Following are the facts of the case:
Construction of Hotel started in the year 2007-08. Wherein the company incurred various expenditure relating to construction. Major portion of the expenses are payment made project consultant, architect and contractor.
All the above parties have issued service invoice.
Company had taken registration under the service tax act in the year 2007 under the category GTA and Business Auxilliary Service (as it was receipient of Transport service and Business Auxiliary Service import)
Construction was completed in the year Feb 2010 and at the time of completion all the expenses were capitalised and credit pertaining to same was claimed by the assessee. (architect fees, project consultation fees and contractor payments)
Now during the service tax audit the auditor is denying the credit on inputs service stated above as according to him the said services are not pertaining to services which are provided by the hotel.
My question is will the input credit on the said services will be allowed and would like to know if there are any case laws pertaining to same
Following are the facts of the case:
Construction of Hotel started in the year 2007-08. Wherein the company incurred various expenditure relating to construction. Major portion of the expenses are payment made project consultant, architect and contractor.
All the above parties have issued service invoice.
Company had taken registration under the service tax act in the year 2007 under the category GTA and Business Auxilliary Service (as it was receipient of Transport service and Business Auxiliary Service import)
Construction was completed in the year Feb 2010 and at the time of completion all the expenses were capitalised and credit pertaining to same was claimed by the assessee. (architect fees, project consultation fees and contractor payments)
Now during the service tax audit the auditor is denying the credit on inputs service stated above as according to him the said services are not pertaining to services which are provided by the hotel.
My question is will the input credit on the said services will be allowed and would like to know if there are any case laws pertaining to same
06 April 2013
Dear All pls reply the matter is bit urgent
06 April 2013
Pl. clarify further:
Why did you avail Cenvat of all the 'Input Services'?
Was any of your Output Service, taxable at that time?
Hotel Accomodation service became taxable in the year 2011.
Secondly, on reverse charge payment through Cenvat is not admissible.
Why did you avail Cenvat of all the 'Input Services'?
Was any of your Output Service, taxable at that time?
Hotel Accomodation service became taxable in the year 2011.
Secondly, on reverse charge payment through Cenvat is not admissible.
08 April 2013
Cenvat of all input service were availed by the assessee at the time when the hotel was capitalised and the hotel started providing services.
Architect fees etc are not directly related to the services which the hotel is providing and the input services was received by the hotel at the time when there were no other services being provided i.e the hotel was in construction phase.
I was just trying to understand if by any chance the inout credit will be allowed to be claimed by any chance.
Whereas reverse charge payment was done through cash only.
Architect fees etc are not directly related to the services which the hotel is providing and the input services was received by the hotel at the time when there were no other services being provided i.e the hotel was in construction phase.
I was just trying to understand if by any chance the inout credit will be allowed to be claimed by any chance.
Whereas reverse charge payment was done through cash only.
01 August 2024
### **Input Credit on Construction Services for a Hotel:**
Under the service tax regime, the eligibility for input credit on services related to construction can be complex. Here’s a detailed breakdown of the situation:
#### **1. **Eligibility for Input Service Credit**:**
- **Input Service Credit**: Under the Cenvat Credit Rules, 2004 (now replaced by GST law), input credit was generally allowed for services used in or in relation to the provision of taxable services. This included services used during the construction of an asset if the services were ultimately used for providing taxable output services.
- **Construction Phase**: In the case of construction of a hotel, the services such as those provided by architects, project consultants, and contractors are considered input services. However, the credit availability often hinges on whether these services are used for providing taxable output services.
#### **2. **Challenges with Input Credit on Construction Services**:**
- **Timing of Credit Claim**: The input service credit for services received during the construction phase (i.e., before the hotel started operations) can be contentious. The credit is typically allowed if the services are directly related to the business of providing taxable services and if they are used for the intended business purpose.
- **Nature of Services**: In your case, architect fees, project consultation fees, and contractor payments are capitalized as part of the cost of construction. These services, although related to the construction, are not directly related to the provision of taxable services by the hotel. The Cenvat Credit Rules were designed to cover services used in providing taxable output services.
#### **3. **Relevant Case Laws and Legal Provisions**:**
- **Supreme Court & High Court Judgements**: Various judicial precedents have addressed similar issues. For instance, the Supreme Court and High Courts have given rulings on whether input credit can be claimed on construction services. Key case laws include:
- **CST vs. M/s. Bharti Airtel Ltd.** (2012) - The court ruled that input services used for setting up an infrastructure for providing taxable services are eligible for credit.
- **M/s. Kerala State Electricity Board vs. CCE** (2011) - The court allowed input credit on services related to setting up infrastructure used for providing taxable services.
- **Department Circulars and Notifications**: The CBEC has issued circulars and notifications clarifying the eligibility of input credit on various services, including those related to construction.
#### **4. **Steps to Take for Claiming Credit**:**
- **Review the Rules and Notifications**: Check the latest Cenvat Credit Rules and any specific circulars or notifications that might address the eligibility of input credit for construction-related services.
- **Documentation**: Ensure you have all relevant documentation, including invoices, contracts, and proof of service utilization. Proper documentation will support your claim for input credit.
- **Consultation**: It may be beneficial to consult with a tax advisor or legal expert specializing in service tax or GST to interpret the rules and case laws applicable to your situation.
#### **5. **Conclusion**:**
The eligibility of input credit on construction services like architect and consultant fees for a hotel depends on whether the services are related to providing taxable services and when the credit was claimed. Given that the hotel was in the construction phase, the input credit might be contentious, but there are precedents where credits have been allowed for construction services used for setting up infrastructure for taxable services.
It is advisable to review the relevant case laws, consult with a tax advisor, and ensure that all necessary documentation is in place to support your claim.
Under the service tax regime, the eligibility for input credit on services related to construction can be complex. Here’s a detailed breakdown of the situation:
#### **1. **Eligibility for Input Service Credit**:**
- **Input Service Credit**: Under the Cenvat Credit Rules, 2004 (now replaced by GST law), input credit was generally allowed for services used in or in relation to the provision of taxable services. This included services used during the construction of an asset if the services were ultimately used for providing taxable output services.
- **Construction Phase**: In the case of construction of a hotel, the services such as those provided by architects, project consultants, and contractors are considered input services. However, the credit availability often hinges on whether these services are used for providing taxable output services.
#### **2. **Challenges with Input Credit on Construction Services**:**
- **Timing of Credit Claim**: The input service credit for services received during the construction phase (i.e., before the hotel started operations) can be contentious. The credit is typically allowed if the services are directly related to the business of providing taxable services and if they are used for the intended business purpose.
- **Nature of Services**: In your case, architect fees, project consultation fees, and contractor payments are capitalized as part of the cost of construction. These services, although related to the construction, are not directly related to the provision of taxable services by the hotel. The Cenvat Credit Rules were designed to cover services used in providing taxable output services.
#### **3. **Relevant Case Laws and Legal Provisions**:**
- **Supreme Court & High Court Judgements**: Various judicial precedents have addressed similar issues. For instance, the Supreme Court and High Courts have given rulings on whether input credit can be claimed on construction services. Key case laws include:
- **CST vs. M/s. Bharti Airtel Ltd.** (2012) - The court ruled that input services used for setting up an infrastructure for providing taxable services are eligible for credit.
- **M/s. Kerala State Electricity Board vs. CCE** (2011) - The court allowed input credit on services related to setting up infrastructure used for providing taxable services.
- **Department Circulars and Notifications**: The CBEC has issued circulars and notifications clarifying the eligibility of input credit on various services, including those related to construction.
#### **4. **Steps to Take for Claiming Credit**:**
- **Review the Rules and Notifications**: Check the latest Cenvat Credit Rules and any specific circulars or notifications that might address the eligibility of input credit for construction-related services.
- **Documentation**: Ensure you have all relevant documentation, including invoices, contracts, and proof of service utilization. Proper documentation will support your claim for input credit.
- **Consultation**: It may be beneficial to consult with a tax advisor or legal expert specializing in service tax or GST to interpret the rules and case laws applicable to your situation.
#### **5. **Conclusion**:**
The eligibility of input credit on construction services like architect and consultant fees for a hotel depends on whether the services are related to providing taxable services and when the credit was claimed. Given that the hotel was in the construction phase, the input credit might be contentious, but there are precedents where credits have been allowed for construction services used for setting up infrastructure for taxable services.
It is advisable to review the relevant case laws, consult with a tax advisor, and ensure that all necessary documentation is in place to support your claim.
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