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Updation of service tax in case of notification no. 26/2012


Dear Professional Colleague,

 

Service tax on activity of builders of selling the Residential flats in the building to be constructed on advance payment (usually construction linked plans) was made subject to service tax under the category of “Commercial or Industrial Construction Services” and “Complex Construction Services” w. e. f. 01.07.2010.


Now, w. e. f. 01.07.2012, in negative list regime, activity undertaken by builders have been included as declared service in clause (b) of section 66E of Finance Act, 1994. Relevant abatement scheme as given in Sr. 12 of table given in Notification No. 26/2012 dated 20.06.2012 is as under:

 

Sl. No.

Descripttion of taxable service                    

Percentage of Taxable portion

Conditions

12

Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority

25%

  1. CENVAT credit on inputs used for providing the taxable service has not been taken under the provisions of the CENVAT Credit Rules, 2004.
  2. The value of land is included in the amount charged from the service receiver.

                       


Huge Benefit in the form of CENVAT Credit: Prior to 01.07.2012 also, rate of abatement was same i.e. 75% and taxable portion was 25% of gross amount (including land cost). However, earlier there was absolute bar on availment of CENVAT Credit. However, now, CENVAT Credit in respect of capital goods and input services (as defined under rule 2 of CENVAT Credit Rules, 2004) has been allowed w. e. f. 01.07.2012. (CENVAT credit in respect of inputs shall not be allowed). Usually, developers get the construction done from a construction contractor who charges service tax from developers in respect of construction services provided to developers.


Now, CENVAT Credit in respect of capital goods and input services (including construction service received which is a substantial expenditure) shall be allowed. Now, developer shall continue to charge service tax from their customers, however, they will now avail CENVAT Credit and deposit lesser amount of service tax in cash after availment of CENVAT Credit. In other words, amount equivalent to CENAVT credit availed by developers will be net saving for developers. Thus, developers discharging service tax must place a system for availing the CENVAT Credit as per the provisions of CENVAT Credit Rules, 2004.

 

Hope you will find the above useful. Best Regards,

 

CA. Girish Rajput


Total thanks : 2 times

 
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Manager - Accounts & Finance

Confusion in respect of above notification

 

As per notification no. 26/2012 it has become clear that CENVAT Credit in respect of capital goods and input services (as defined under rule 2 of CENVAT Credit Rules, 2004) has been allowed w. e. f. 01.07.2012. (CENVAT credit in respect of inputs shall not be allowed).

 

As due to taking the benefit of abatement construction service will cover in exempted service as per rule 2(e) of CCR 2004,

 

My question is whether construction service will cover in exempted service or not?

 

If it is covered under exempted service then cenvat credit are required to reverse as per rule 6 or not?

Confusion in respect of above notification

 

As per notification no. 26/2012 it has become clear that CENVAT Credit in respect of capital goods and input services (as defined under rule 2 of CENVAT Credit Rules, 2004) has been allowed w. e. f. 01.07.2012. (CENVAT credit in respect of inputs shall not be allowed).

 

As due to taking the benefit of abatement construction service will cover in exempted service as per rule 2(e) of CCR 2004,

 

My question is whether construction service will cover in exempted service or not?

 

If it is covered under exempted service then cenvat credit are required to reverse as per rule 6 or not?

 

 
Reply   
 



Please make this clear that for a contractor providing construction service, there are two options available. Firstly, take the abatement and forgo the benefit of CENVAT Credit as per the above said notification, else charge service tax on the entire value and avail the benefit of CENVAT Credit. Again, service receiver will not be entitled to take any Credit on the amount of service tax paid to the Contractor by virtue of the exclusion clause provided in the definition of Input services under CCR, 2004. Hope this will end up your confusion.

 
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Joint Manager - F & A


As regards to the same, I've understood that cenvat credit on capital goods (i.e Excise Duty) and Service Tax paid to external contractor/ other service provider can be taken as input against Service Tax Payable, and the bar is on the inputs of materials (i.e Cenvat Credit on Purchase of consumables).

 

I  want to know that is the below mentioned clause is also effective after the above changes:

 

1. Service Tax on Works contracts earlier paying @ 4.8% under Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007.
 
if Yes, than is the Inputs of Cenvat Credit and Service Tax can be claimed under such conditions.

 

 
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Manager - Accounts & Finance

Dear Ajit kumar Dubey ji

by notification no. 26/2012 it become possible to claim abatement @ 75% and take credit of input service and capital goods,

what you are saying is old provision as i think

 

 
Reply   
 

Dear Ankit,

"exempted services" means taxable services which are exempt from the whole of the service tax leviable thereon, and includes services on which no service tax is leviable under section 66 of the Finance Act.

 

my view is that construction service will not be covered in exempted services and plz let me know if any other development

 
Reply   
 
Manager - Accounts & Finance

As per notification no. 28/2012 - Central Excise date 20-06-2012

‘(e) “exempted service” means a-
(1) taxable service which is exempt from the whole of the service tax leviable thereon; or
(2) service, on which no service tax is leviable under section 66B of the Finance Act; or
(3) taxable service whose part of value is exempted on the condition that no credit of inputs and input
services, used for providing such taxable service, shall be taken;
but shall not include a service which is exported in terms of rule 6A of the Service Tax Rules, 1994.’

 

 

 

 
Reply   
 

Dear Ankit,

Thanks for updation,

I hv gone through the notification

(e) “exempted service” means a-
(1) taxable service which is exempt from the whole of the service tax leviable thereon; or
(2) service, on which no service tax is leviable under section 66B of the Finance Act; or
(3) taxable service whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken

but

as per notification no 26/2012,

Part of the value of the service is exempted on the condition that no credit of inputs (Inputs only) would be allowed

so

in the light of the above provisions, construction services will not be covered under exempeted services

let me know if have any different views and updations

 
Reply   
 
Account Manager


One of my client is registered for service tax under commercial or industrial service. In the period of 01/04/12 to 30/06/12, he raised the bill like below

100 + (service tax on 33% of 100) 4.08 = 104.08/-

Can he take the cenvat credit?

After 01/07/2012 he raised the bills like this

100 + ( 50% service tax i.e. 12.36 * 50%) 6.18 = 106.18

Now can he take the cenvat credit on inputs like bills of consultancy, labour etc.

Note : Party is individual

Please give me the suggestion that he is liable to take cenvat credit or not?

 

 

 

 
Reply   
 
Manager - Accounts & Finance

Dear Sodha,

in case service of Construction of a complex,building, civil structure or a partthereof, are  provided by ur client then CENVAT credit on inputs service and capital goods can be taken, w .e. f 01-07-2012

CENVAT credit on input service and capital goods not allowed before 01-07-2012.

 

 

Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority

Read more at: http://www.caclubindia.com/forum/updation-of-service-tax-in-case-of-notification-no-26-2012-209043.asp#.UJzlIWdpzKQ
Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority

Read more at: http://www.caclubindia.com/forum/updation-of-service-tax-in-case-of-notification-no-26-2012-209043.asp#.UJzlIWdpzKQ

 

Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority

Read more at: http://www.caclubindia.com/forum/updation-of-service-tax-in-case-of-notification-no-26-2012-209043.asp#.UJzlIWdpzKQ
Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority

Read more at: http://www.caclubindia.com/forum/updation-of-service-tax-in-case-of-notification-no-26-2012-209043.asp#.UJzlIWdpzKQ
Construction of a complex, building, civil structure or a part thereof, intended for a sale to a buyer, wholly or partly except where entire consideration is received after issuance of completion certificate by the competent authority

Read more at: http://www.caclubindia.com/forum/updation-of-service-tax-in-case-of-notification-no-26-2012-209043.asp#.UJzlIWdpzKQ


Total thanks : 1 times

 
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