Utilization of cenvat credit of manufactur in construction
This query is : Resolved
01 March 2017
My company is in manufacturing of electrical parts. Aside from this we are also doing construction of building for a third party. 3rd party is a company. While raising the invoice we are charging service tax on 40% value of invoice as per Rule 2A(ii) of Service tax (determination of value) rules 2006. It is original contract.
The service tax charged from customer is paid to govt. via CENVAT (not in cash). The CENVAT used belongs to inputs & input services of manufacturing not of construction.
Now Superintendent of excise is telling that it is not allowed as one to one relation is not satisfied.
But as per me, we are manufacturers - hence, as per CENVAT credit rules 2004 - Rule 3(4)(e) we can discharge the liability through CENVAT.
Kindly suggest.
The service tax charged from customer is paid to govt. via CENVAT (not in cash). The CENVAT used belongs to inputs & input services of manufacturing not of construction.
Now Superintendent of excise is telling that it is not allowed as one to one relation is not satisfied.
But as per me, we are manufacturers - hence, as per CENVAT credit rules 2004 - Rule 3(4)(e) we can discharge the liability through CENVAT.
Kindly suggest.
01 March 2017
Yes you can do it. See the link for more details.
http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=11098
http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=11098
03 March 2017
The link provides the news & a persons view.
I require some case law or CESTAT judgement on the basis of which i can argue with the superintendent.
For interpreting rule 3(4)(e) - they are relying on definition under Rule 2(L) CENVAT credit rules amended in 2012.
And also they are telling the Rule 3(4)(e) is general where as Rule 2A(ii) of Service tax (determination of value) rules 2006 is specific and in its explanation it has mentioned that credit can be taken of input services only relating to construction, hence from manufacturing i cannot utilize the credit.
I require some case law or CESTAT judgement on the basis of which i can argue with the superintendent.
For interpreting rule 3(4)(e) - they are relying on definition under Rule 2(L) CENVAT credit rules amended in 2012.
And also they are telling the Rule 3(4)(e) is general where as Rule 2A(ii) of Service tax (determination of value) rules 2006 is specific and in its explanation it has mentioned that credit can be taken of input services only relating to construction, hence from manufacturing i cannot utilize the credit.
02 August 2025
You're facing a classic dispute between **general provisions of CENVAT Credit Rules, 2004** and **specific provisions under Service Tax (Determination of Value) Rules, 2006** — particularly Rule 2A(ii) and its Explanation.
Let’s break down your position and how to support it:
---
### ✅ **Your Argument (in favour of using manufacturing CENVAT credit for construction services)**:
1. **Rule 3(4)(e) of CENVAT Credit Rules, 2004**:
> “CENVAT credit may be utilised for payment of service tax on any output service.”
* There is **no restriction** that credit used must come from inputs/input services related to that specific output service.
* Once CENVAT credit is legally availed (on inputs/input services used in manufacture), it becomes **fungible** and can be used to discharge **any output liability**, including that on construction services.
2. **Construction service is a taxable output service** in your case (you’re charging ST on 40% value), hence you are **entitled to utilise CENVAT**.
---
### 🚫 **Superintendent's Argument (why they say it's disallowed)**:
* **Explanation to Rule 2A(ii)** (after 2012 amendment): Limits availability of credit **only to input services** that are **directly used in relation to construction**.
* They treat it as a **works contract**, and rely on **specific provisions** under Service Tax Valuation Rules that override general credit eligibility.
---
### 📚 **Supportive Case Laws and Clarifications**:
Here are some precedents and references to help you argue:
---
#### 🏛️ **CCE vs. Strategic Engineering (P) Ltd – 2014 (34) STR 160 (Madras HC)**
* **Held**: CENVAT credit validly taken under CCR, 2004 for one output service can be used for payment of tax on another, **no one-to-one co-relation is required**.
#### 🏛️ **CCE vs. Deloitte Support Services Pvt. Ltd. – 2015 (39) STR 240 (Tri-Bang)**
* **Held**: CENVAT credit taken for input services of one output service can be used for payment of another output service – **as long as services are taxable**.
#### 🏛️ **Gammon India Ltd. v. CCE \[2011 (23) STR 341 (Tri.-Mum)]**
* **Held**: Even in works contract, once the service is taxable and credit is legally availed, **fungibility applies**, unless specifically restricted.
---
### 📌 Practical Tip:
You can also refer to **CBEC's Education Guide on Service Tax (2012)**:
> “Input service credit can be used across services as long as the output service is taxable and the input services are not specifically excluded.”
---
### 🧾 Suggestion:
* File a **written reply** citing:
* Rule 3(4)(e) of CCR, 2004
* No requirement of one-to-one correlation post-2008
* Case laws (esp. *Strategic Engineering* and *Deloitte*)
* Distinguish Rule 2A(ii) as **valuation rule**, not credit restriction rule
* Mention that Rule 2A(ii)'s Explanation affects **value determination**, but not CENVAT credit **utilisation**, which is governed by separate rule (CCR).
---
### 📘 Conclusion:
Yes, you are allowed to use CENVAT credit from manufacturing activities for discharging service tax on construction services **as long as:**
* The construction is taxable,
* You are registered as provider of taxable services,
* Credit has been validly availed.
Let me know if you need a **draft reply** to send to the Superintendent.
Let’s break down your position and how to support it:
---
### ✅ **Your Argument (in favour of using manufacturing CENVAT credit for construction services)**:
1. **Rule 3(4)(e) of CENVAT Credit Rules, 2004**:
> “CENVAT credit may be utilised for payment of service tax on any output service.”
* There is **no restriction** that credit used must come from inputs/input services related to that specific output service.
* Once CENVAT credit is legally availed (on inputs/input services used in manufacture), it becomes **fungible** and can be used to discharge **any output liability**, including that on construction services.
2. **Construction service is a taxable output service** in your case (you’re charging ST on 40% value), hence you are **entitled to utilise CENVAT**.
---
### 🚫 **Superintendent's Argument (why they say it's disallowed)**:
* **Explanation to Rule 2A(ii)** (after 2012 amendment): Limits availability of credit **only to input services** that are **directly used in relation to construction**.
* They treat it as a **works contract**, and rely on **specific provisions** under Service Tax Valuation Rules that override general credit eligibility.
---
### 📚 **Supportive Case Laws and Clarifications**:
Here are some precedents and references to help you argue:
---
#### 🏛️ **CCE vs. Strategic Engineering (P) Ltd – 2014 (34) STR 160 (Madras HC)**
* **Held**: CENVAT credit validly taken under CCR, 2004 for one output service can be used for payment of tax on another, **no one-to-one co-relation is required**.
#### 🏛️ **CCE vs. Deloitte Support Services Pvt. Ltd. – 2015 (39) STR 240 (Tri-Bang)**
* **Held**: CENVAT credit taken for input services of one output service can be used for payment of another output service – **as long as services are taxable**.
#### 🏛️ **Gammon India Ltd. v. CCE \[2011 (23) STR 341 (Tri.-Mum)]**
* **Held**: Even in works contract, once the service is taxable and credit is legally availed, **fungibility applies**, unless specifically restricted.
---
### 📌 Practical Tip:
You can also refer to **CBEC's Education Guide on Service Tax (2012)**:
> “Input service credit can be used across services as long as the output service is taxable and the input services are not specifically excluded.”
---
### 🧾 Suggestion:
* File a **written reply** citing:
* Rule 3(4)(e) of CCR, 2004
* No requirement of one-to-one correlation post-2008
* Case laws (esp. *Strategic Engineering* and *Deloitte*)
* Distinguish Rule 2A(ii) as **valuation rule**, not credit restriction rule
* Mention that Rule 2A(ii)'s Explanation affects **value determination**, but not CENVAT credit **utilisation**, which is governed by separate rule (CCR).
---
### 📘 Conclusion:
Yes, you are allowed to use CENVAT credit from manufacturing activities for discharging service tax on construction services **as long as:**
* The construction is taxable,
* You are registered as provider of taxable services,
* Credit has been validly availed.
Let me know if you need a **draft reply** to send to the Superintendent.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Notice from IT DEPTT IF FD AMOUNT EXCEEDS 10 LACS
- GST payable under RCM
- Applicablity on tds
- Unable to generate and save json file for updated return
- GSTR9- ITC
- Regarding TDS not deducted on rent
- Which SAC code should be selected??
- Audit of F and O T/O
- LTCG offset against property buy
- Tax audit & Switching from Presumptive taxation
- Import purchase entry
- Rule 54(1A) for Distributing ITC
- EXCESS CREDIT REALTED GST REVERSAL
- Export invoice not reported
- CA Articleship Extension Matter
- GST OFFICER WRONG NOTICE
- "Please ensure that the Total of the Deductions u/s 54F match the same in Table D in Sch CG"
- Composition Dealer GST Annual Return Filing process
- Revision under Section 264 in The Income Tax Act, 1961
- TDS under section 195.
Trending Online Classes
-
LIVE Course on GSTR-9 & GSTR-9C (Technical | Practical | Concept - Based)
Sachin Jain03 November 2025
CAclubindia
