Our company main activity is Repairs of vessels for this purpose initially we drigging for crane track,floating dock stability purpose, and constructed,capital goods installed,commissioned.(sea)
Now Service Tax dept. saying Drigging and constructed upto the basement level is not to be taken as a Input credit. above basement level capital goods only eligible for input credit.
Regarding your query about Service Tax Input Credit on capital goods related to dredging and construction of crane track and floating dock stability, here’s some clarity:
What the Service Tax Department is saying: Input Credit is not allowed for dredging and construction up to basement level.
Input Credit is allowed only for capital goods above basement level.
Is this correct? Yes, this position is generally aligned with Service Tax and CENVAT Credit Rules, explained as follows:
Input Service Credit Eligibility:
Input services or capital goods used directly in the manufacture of excisable goods or providing taxable services are eligible for credit.
Dredging and construction activities up to the basement level are often considered as land development or site preparation, which is not eligible for CENVAT credit because they are not considered as capital goods or input services used directly in taxable service.
Capital Goods Above Basement Level:
Construction activities above basement level, such as erection of cranes, docks, or other capital assets, are eligible for input credit since these are capital goods used directly in providing taxable services (e.g., vessel repair).
Legal References:
The CENVAT Credit Rules, 2004 define capital goods eligible for credit and exclude activities related to land or site development.
Courts and CBEC circulars have consistently held that site preparation, land development, and construction below basement level do not qualify for input credit.
What should you do? Maintain clear documentation segregating costs of dredging/construction below basement and those above basement.
Claim input credit only on eligible capital goods (above basement level).
If the department challenges credit on below basement activities, rely on CENVAT rules and relevant circulars to defend your position.
CAclubindia
