Opinion required- service tax on construction

This query is : Open

Rakesh Kumar Singh (Querist)
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08 September 2012 According to Notification No 26/2012 dated 20-06-2012 with effect from 01-07-2012 in respect of Construction of a complex, building, civil structure or a part thereof which is intended for sale to a buyer, wholly or partly, service tax is payable on the 25% of the amount charged by such service provider subject to the condition that CENVAT Credit on “inputs” used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004. In other words, Department has given bonanza to builders by allowing them to avail and utilize CENVAT Credit in respect of “input services” and “capital goods” while discharging their service tax liability in respect of Construction Services with effect from 01-07-2012.

Case-1
For Example: we are developing a residential/ commercial building and also planned to sale 80% of flats before issuance of completion certificate and balance of 20% retained as stock-in-trade and to sale it after issuance of completion certificate. According to section 66E of the Finance Act-2012, in case of 80% of sale; service tax applicable; whereas in case of 20% of sale, service tax is not applicable due to consideration received from buyer against the cost of flat after the issuance of completion certificate.

Case-2
We received consideration i.e. 80% of flat cost from prospective buyer before issuance of completion certificate and 20% of flat cost at the time of hand over of possession after the issuance of completion certificate.

Case-3
We accumulated CENVAT Credit at Head Office from the services provided for Plotted Project and other activities on which service tax is not leviable as well as for construction complex services on which service tax is leviable.

Queries

1.What is the implication of CENVAT credit in Case-1 & 2; can we utilize 100% of input service tax against 80% of out put tax liability?

2.What is the implication of Rule 6 of CENVAT Credit Rule-2004 in Case-3; Can we utilize all CENVAT credit against our service tax liability?

3.Kindly provide the procedure for utilization of CENVAT credit in all the above three cases.

CA Suresh Jain

CA Suresh Jain (Expert)
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09 September 2012 1. You can take credit @ 100% but to follow the provisions of rule 3,4, and 6
2. yes you can follow CENVAT credit for payment of service tax on taxable service but also you have to pay service tax or reverse the credit in terms of rule 6 against the exempted service

3. Please refer to rule 2, 3,4 and 6 of CENVAT credit rules, 2004 as amended

For further clarification please mail the query at sureshjain.nj@gmail.com and pay if you please Rs. 100 to 500 donation to the "KADAM" institute engaged in education to children of construction labours.
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