Works contract service - composition scheme

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I am reproducing sub-rule 2A of rule 3 (inserted in 2011) of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.
 
"(2A) The CENVAT credit of tax paid on taxable services as referred to under sub-clauses (zzd), (zzq) and (zzzh) of clause (105) of section 65 of the Finance Act, 1994, shall be available only to the extent of 40% of the service tax paid when such tax has been paid on the full value of the service after availing CENVAT credit on inputs."

The whole rule can be confirmend from: :  https://www.eximkey.com/contents/showpage1.asp?pageid=23045

Please tell, what do you mean by "Full value of service" and "After availing CENVAT credit on inputs"?

Also, please specify, to apply this rule, should the input service provider (i.e. provider of services mentioned in (zzd), (zzq) and (zzzh) be in composition scheme or not?

Replies (1)

What I understood by the text, "tax has been paid on the full value of the service after availing CENVAT credit on inputs" as given in Rule 3(A) of Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 is that:

1. Credit on these  specified services will be allowed only where abatement as available on these services (67%) has not been availed by the input service provider.

2. Service Tax has been paid to input service provider on full value of service.

3.  Non availment of CENVAT Credit is a pre condition for claiming abatement. Where abatement is not claimed, CENVAT credit on inputs used by input service provider will be available to him. The same may be utilised for paymnet of service tax.

4. Subject to above, CENVAT credit on these specified services would be available only to the extent of 40% of amount of service tax paid to input service provider.


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