Cenvat on works contract

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Deepak Ghadi

Chartered Accountant

30 Points Posted on 04 June 2013

Understanding Rule 2A of Service Tax (Determination of Value) Rules, 2006.

In this Rule 2A, there is “Explanation 2” to Sub-Rule (ii) which says that works contract service provider shall not take CENVAT credit of duties paid on any inputs, i.e. CENVAT on input services & capital goods will be available.

My query is since this explanation is in relation to Sub-Rule (ii) of Rule 2A, will it apply to Sub-Rule (i) as well?

In my opinion under Sub-Rule (i) one is paying service tax at full rate on the value of service portion, hence one shall be allowed to take the benefit of CENVAT in respect of inputs.

Replies (4)

Manoj Mhatre

Practising Chartered Accountant

55 Points Posted on 04 June 2013

“Explanation 2” to Sub-Rule (ii) will not apply to sub-rule (i)

Madhukar N Hiregange

Chartered Accountant

33545 Points Posted on 05 June 2013

Under sub rule (i) also the deduction for value of goods is provided and further the explanation applies for works contract per se. If it is not a WC like say Housekeeping services where the disinfectants/ soap is used where it is not transferred but used in keeping the place clean then it is not a WC and \in that case the credit wouldbe available.

Madhukar N Hiregange

Chartered Accountant

33545 Points Posted on 05 June 2013

Therefore the input credit wouldnotbe available in case of any WC due to specific denial.

Deepak Ghadi

Chartered Accountant

30 Points Posted on 05 June 2013

Appreciate your views Sir but according to my understanding this particular "Explanation 2" is specifically inserted after clause (ii) and clause (i) seems to be independent....

Moreover, Sub-Rule (k) of Rule 2 of Cenvat Credit Rules, 2004 defines “Input” as ……..

(iv) all goods used for providing any output service;

but excludes- (B) any goods used for -

(a) construction or execution of works contract of a building or a civil structure or a part thereof; or

(b) laying of foundation or making of structures for support of capital goods,

except for the provision of service portion in the execution of a works contract or construction service as listed under clause (b) of section 66E of the Act;]