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Service tax

SIVARAMAN (SENIOR EXECUTIVE ACCOUNTS) (136 Points)

15 November 2008

We are executing Civil works order for one of our customers. we do not avail abatement and charge service tax in full ie 12.36% on services rendered by us . we take service tax credit on the rawmaterils (steel, cement) purchased by us. These materilas are given to our subcontrcator , (who is also registered under service tax ) . WE also take credit for the service tax charged by our subcontractor on his labour bill.

Is it right to take cenvat credit both on Exice duty of Rawmaterials and service tax of our labour contractor Bill.

Or is the labour contractor only can take credit for the Excise duty of the rawmaterials purchased by us and given to him and we are not supposed to take credit?

Please advise.

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1 Replies

CA. C V SURYAM (Practising Chartered Accountant) (865 Points)
Replied 15 November 2008

There are two issues to look into this. (1) Materials are issued free of cost to sub-contractor. In such a case, value of free issue materials shall be included in the gross amount charged by sub-contractor(SC). Because the main contractor (MC) is not incorporating the materials, he is not entitled to avail cenvat. As there is no CE invoice, sub-contractor is also not eligible to avail cenvat. However, basing on the ST invoice issued by SC, MC can avail cenvat credit under input services. (2) Where materials are issued at value to SC, then CE invoice shall be raised (Dealers' invoice) by MC. For this MC should have dealer regn. under CE. Bsing on this invoice, SC can avail cenvat depending upon the method of arriving value of taxable service by him. The best method should be arrived by evaluating both to minimise the tax burden.