Excise /service tax on turnkey contract

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This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

10 November 2011 YSR limited gives a turnkey contract to say Land T for construction of factory and supply and erection of machinery .

query
1,For a single turnkey Contract of above nature can the Cenvat credit of Service Tax available ?
2. L and T purchase machinery of Rs. 5o Cr on behalf the client.Can L and T take Cenvat credit of this machinery which it user for erection and commissioning and charge Service tax to client on entire contract value ?
3. Ideally who should be made consignee in excise invoice for purchase of machinery ? Can YSR or L and T both take credit of the ED on machinery ?

regards,

PUNEET GOYAL

PUNEET GOYAL (Expert)
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16 November 2011 On the basis of above fact it appears that service provided by L&T are taxable under Works Contract Service U/s 65 (105) (zzzza).

1. Now whether CENVAT credit available or not to L&T depends on whether it has opted composition scheme or not:
A. Suppose L&T has opted for composition scheme then it can take CENVAT credit in respect of following:
i). Input service
ii). Capital Goods

CENVAT credit in respect of following input services shall be restricted to 40% of service tax paid(See NN 01 dated 01.03.11):
taxable services referred to sub-clauses
(zzd), (zzq) and (zzzh) of clause (105) of section 65.

B. Suppose L&T not opted for composition scheme. Now L&T can take CENVAT credit of following:
i). Input
ii). Input Services
iii). Capital Goods

However no credit shall be allowed of goods used in works contract.

2.If the machinery is the part of above contract means machinery is raw material for above project and L&T opted for composition scheme then no CENVAT credit shall be allowed. However if it is used as capital goods for execution of above contract then u can avail CENVAT credit.

3. IF L&T opted for composition scheme then consignee should be L&T for availing option of composition scheme if machinery is part of above contract.

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