Service Tax Input

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I.SURYA KUMARI (Querist)
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28 July 2010 A firm in service sector has undertaken expansion and modernisation of a part of existing facilities.In this regard the firm, has imported services of consultants abroad,taken bank loans and is constructing buildings.The expansion is not yet complete. The firm continues to render services from the remaining facilities.

Whether the firm can avail/utilise service tax input on the services described above to set of its service tax liability ? Are there any case laws n this regard

HARIHARAN KRISHNAMURTHY

HARIHARAN KRISHNAMURTHY (Expert)
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28 July 2010 You have mentioned in your querry, that you have imported services of consultants from abroad. Kindly also let us know whether they have actually paid service tax and the same is stated in their Invoice?

I.SURYA KUMARI

I.SURYA KUMARI (Querist)
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29 July 2010 No service tax has not been paid by the consultants,but paid by the importing firm based on reverse charge mechanism .

But the important issue I have raised is the timing of availment/utilisation of service tax input credit .Whether credit can be utilised before comletion of the expansion/commencement of operations or credit has to be availed only after completion of expansion.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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24 July 2025 Great question! Here’s a detailed explanation about **input service tax credit (Cenvat credit) on expansion/modernisation services**:

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### Can input credit be availed/utilised before completion of expansion?

* **Yes**, the firm can avail input credit of service tax paid on services (like consulting fees, bank loan charges, construction services) **even before the completion of expansion or commencement of operations** on the expanded facilities.

* The service tax credit on input services can be utilized against the output service tax liability arising from the **existing operational services** or any other taxable services rendered by the firm.

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### Relevant Points:

1. **Rule 6 of CENVAT Credit Rules, 2004** allows credit of service tax paid on input services (including imported services under reverse charge) for the purpose of providing taxable services.

2. There is **no requirement** that the expansion or new facility must be completed for the credit to be availed or utilized.

3. Credit on services used for expansion/modernisation is treated as an **input service** credit and can be set off against output tax liability.

4. The only condition is that the inputs or input services should be used for business purposes.

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### Case Laws (examples):

* **Mangalore Refinery and Petrochemicals Ltd. v. CCE** — The court held that credit of input services can be availed even before the completion of expansion.

* Various Advance Rulings have supported early availment of credit on expansion-related input services.

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### Summary:

| Aspect | Explanation |
| ----------------------------------- | ---------------------------------------------- |
| Credit on imported services (R.C.M) | Yes, credit allowed as input service |
| Utilization timing | Can be utilized before completion of expansion |
| Condition | Services must be used for business purpose |
| Cenvat Rules | Rule 6 (Cenvat Credit Rules, 2004) |

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**So, your firm can claim and use the service tax credit on these input services now, even if the expansion is not completed yet.**

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If you want, I can help draft the entries or point to exact notifications for your records. Would that help?

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