Cenvat credit on building construction @ manufacturing site
This query is : Open
18 October 2013
We are a manufacturing unit and entitled to Cenvat Credit on Service Tax.
This query is about the expansion site for manufacturing which also includes office space and amenities. We would like to know if service tax charged by the contractor can be availed as Cenvat Credit? There is no bifurcation of the bill for manufacturing area and other office area.
If the service tax is applicable, then under what notification? If it is not allowed, is it explained explicitly in any particular notification??
This query is about the expansion site for manufacturing which also includes office space and amenities. We would like to know if service tax charged by the contractor can be availed as Cenvat Credit? There is no bifurcation of the bill for manufacturing area and other office area.
If the service tax is applicable, then under what notification? If it is not allowed, is it explained explicitly in any particular notification??
19 October 2013
Dear Mr. Bhattacharya,
The definition of Input Service was extensively ammended vide notification 3/2011 C.E (NT) dated 01.03.2011.
„(l) “input service” means any service, -
(i) used by a provider of taxable service for providing an output service; or
(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,
and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal;
but excludes
services,-
(A) specified in sub-clauses (p), (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105)
of section 65 of the Finance Act (hereinafter referred as specified services), in so far as they
are used for-
(a) construction of a building or a civil structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital goods,
except for the provision of one or more of the specified services; or
(B) specified in sub-clauses (d), (o), (zo) and (zzzzj) of clause (105) of section 65 of the
Finance Act, in so far as they relate to a motor vehicle except when used for the provision of
taxable services for which the credit on motor vehicle is available as capital goods; or
(C) such as those provided in relation to outdoor catering, beauty treatment, health services,
cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance,
health insurance and travel benefits extended to employees on vacation such as Leave or
Home Travel Concession, when such services are used primarily for personal use or
consumption of any employee;‟;
So far as the contract is in nature of repair, renovation of factory premises the cenvat is admissible. However in case of contract in nature of construction of new premises or expansion of existing premises they would fall under construction of building or civil structure and cenvat would be inadmissible.
The definition of Input Service was extensively ammended vide notification 3/2011 C.E (NT) dated 01.03.2011.
„(l) “input service” means any service, -
(i) used by a provider of taxable service for providing an output service; or
(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal,
and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal;
but excludes
services,-
(A) specified in sub-clauses (p), (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105)
of section 65 of the Finance Act (hereinafter referred as specified services), in so far as they
are used for-
(a) construction of a building or a civil structure or a part thereof; or
(b) laying of foundation or making of structures for support of capital goods,
except for the provision of one or more of the specified services; or
(B) specified in sub-clauses (d), (o), (zo) and (zzzzj) of clause (105) of section 65 of the
Finance Act, in so far as they relate to a motor vehicle except when used for the provision of
taxable services for which the credit on motor vehicle is available as capital goods; or
(C) such as those provided in relation to outdoor catering, beauty treatment, health services,
cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance,
health insurance and travel benefits extended to employees on vacation such as Leave or
Home Travel Concession, when such services are used primarily for personal use or
consumption of any employee;‟;
So far as the contract is in nature of repair, renovation of factory premises the cenvat is admissible. However in case of contract in nature of construction of new premises or expansion of existing premises they would fall under construction of building or civil structure and cenvat would be inadmissible.
19 October 2013
Dear Mr. Aditya Umarji,
Thanks for your feedback upfront, much appreciated.
I had a similar view view on the matter too. However, I wonder how can cenvat be admissible even on repair, renovation of such premises which prima facie is negated i.e. construction of new premises and expansion of existing premises
Thanks for your feedback upfront, much appreciated.
I had a similar view view on the matter too. However, I wonder how can cenvat be admissible even on repair, renovation of such premises which prima facie is negated i.e. construction of new premises and expansion of existing premises
19 October 2013
Dear Mr. Bhattacharya,
The content matter of the definition specifically includes the terminology,
'Modernisation, repairs and renovation'. In general interpretation, the cost of Repairs is fairly lower than the cost of new construction. Also certain repairs & renovations are mandatory in nature; like painting the factory once in three years is mandated under the factories act. Keeping in mind the low cost and the regulatory norms the cenvat on repairs seems to have been allowed.
Modernization of a factory would result into better productivity which is directly related to the process of manufacture which are ground for admissibility of Cenvat.
The content matter of the definition specifically includes the terminology,
'Modernisation, repairs and renovation'. In general interpretation, the cost of Repairs is fairly lower than the cost of new construction. Also certain repairs & renovations are mandatory in nature; like painting the factory once in three years is mandated under the factories act. Keeping in mind the low cost and the regulatory norms the cenvat on repairs seems to have been allowed.
Modernization of a factory would result into better productivity which is directly related to the process of manufacture which are ground for admissibility of Cenvat.
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19 October 2013
Dear Mr. Aditya Umarji
Thanks, once again. Notwithstanding the cost, the issue is absolute. My heart would seem to agree with what you say, my head still seems to disagree.
Revenue Department in its Circular No. 98/1/2008-ST issued an explicit clarification, which says "Input credit of service tax can be taken only if the output is a service liable to service tax or goods liable to excise duty. Since immovable property is neither "service" or "goods"... input credit cannot be taken.
In Notification No. 3/2011-C.E. (N.T.) dated March 1, 2011, definition of input and input services has been changed and any goods or specified input services used in construction contract or construction service has been excluded from the definition of input and input services respectively.
However, following the CESTAT ruling in Oberoi Mall Ltd. Vs. Commissioner of Service Tax [2013-TIOL-604-CESTAT-MUM, it has emerged that availment of credit on the excise duty paid on various inputs for payment of tax as the output services, namely, storage and warehousing services is admissible. Also availment of CENVAT credit of the service tax paid on ‘commercial construction service, security service, advertising service is admissible.
The genesis of the this subject / thread has therefore arisen whether cenvat availment is admissible for expansion including repair, renovation.??
Thanks, once again. Notwithstanding the cost, the issue is absolute. My heart would seem to agree with what you say, my head still seems to disagree.
Revenue Department in its Circular No. 98/1/2008-ST issued an explicit clarification, which says "Input credit of service tax can be taken only if the output is a service liable to service tax or goods liable to excise duty. Since immovable property is neither "service" or "goods"... input credit cannot be taken.
In Notification No. 3/2011-C.E. (N.T.) dated March 1, 2011, definition of input and input services has been changed and any goods or specified input services used in construction contract or construction service has been excluded from the definition of input and input services respectively.
However, following the CESTAT ruling in Oberoi Mall Ltd. Vs. Commissioner of Service Tax [2013-TIOL-604-CESTAT-MUM, it has emerged that availment of credit on the excise duty paid on various inputs for payment of tax as the output services, namely, storage and warehousing services is admissible. Also availment of CENVAT credit of the service tax paid on ‘commercial construction service, security service, advertising service is admissible.
The genesis of the this subject / thread has therefore arisen whether cenvat availment is admissible for expansion including repair, renovation.??
19 October 2013
Dear Mr. Aditya Umarji
Thanks, once again. Notwithstanding the cost, the issue is absolute. My heart would seem to agree with what you say, my head still seems to disagree.
Revenue Department in its Circular No. 98/1/2008-ST issued an explicit clarification, which says "Input credit of service tax can be taken only if the output is a service liable to service tax or goods liable to excise duty. Since immovable property is neither "service" or "goods"... input credit cannot be taken.
In Notification No. 3/2011-C.E. (N.T.) dated March 1, 2011, definition of input and input services has been changed and any goods or specified input services used in construction contract or construction service has been excluded from the definition of input and input services respectively.
However, following the CESTAT ruling in Oberoi Mall Ltd. Vs. Commissioner of Service Tax [2013-TIOL-604-CESTAT-MUM, it has emerged that availment of credit on the excise duty paid on various inputs for payment of tax as the output services, namely, storage and warehousing services is admissible. Also availment of CENVAT credit of the service tax paid on ‘commercial construction service, security service, advertising service is admissible.
The genesis of the this subject / thread has therefore arisen whether cenvat availment is admissible for expansion including repair, renovation of new / existing factory premises??
Thanks, once again. Notwithstanding the cost, the issue is absolute. My heart would seem to agree with what you say, my head still seems to disagree.
Revenue Department in its Circular No. 98/1/2008-ST issued an explicit clarification, which says "Input credit of service tax can be taken only if the output is a service liable to service tax or goods liable to excise duty. Since immovable property is neither "service" or "goods"... input credit cannot be taken.
In Notification No. 3/2011-C.E. (N.T.) dated March 1, 2011, definition of input and input services has been changed and any goods or specified input services used in construction contract or construction service has been excluded from the definition of input and input services respectively.
However, following the CESTAT ruling in Oberoi Mall Ltd. Vs. Commissioner of Service Tax [2013-TIOL-604-CESTAT-MUM, it has emerged that availment of credit on the excise duty paid on various inputs for payment of tax as the output services, namely, storage and warehousing services is admissible. Also availment of CENVAT credit of the service tax paid on ‘commercial construction service, security service, advertising service is admissible.
The genesis of the this subject / thread has therefore arisen whether cenvat availment is admissible for expansion including repair, renovation of new / existing factory premises??
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