CENVAT credit - Works Contract, Service Tax

[Krishna Kumar A]

Dear Experts,

One of my client (proprietary business)is providing works contract service to a Co-operative society. To be more specific, service is in the nature of building their new office. Now my client would like to subcontract this to another Pvt. Ltd Company. In this regards, I would like to know:

1. Whether my client will be able to avail CENVAT credit of the Service tax billed by the Pvt. Ltd. Company.
2. If the company is only providing labour supply contract to my client whether my client will be able to take Cenvat credit?
3. Any effect that may have on the above if my client is also a director of the above mentioned private limited company?

Posts / Replies

[KASTURI SETHI]

Dear Sh.Krishan Kumar Ji,

1. Whether Service will be with material ?

2. If Pvt. Ltd. company provides the service of 'Manpower Supply,' liability of ST will be on Service Receiver i.e. your client.

Solid reply is possible only after going through terms and conditions of agreement executed between your client and sub contactor.

[Krishna Kumar A]

Dear Kasturi Sethi Sir,

There are 2 cases, in the first case, My client would like to subcontract the entire Works Contract (including material) to the Private limited Company.

In the second case, only labour supply contract is given to Private limited company instead of entire works contract as mentioned in the first case.

For the both cases i would like to know whether my client would be able to take CENVAT credit on input services?

With respect to your following statement:-

"2. If Pvt. Ltd. company provides the service of 'Manpower Supply,' liability of ST will be on Service Receiver i.e. your client."

I think the private limited company will charge ST in their bills and my client has to pay it. Reverse charge is not applicable here.

Kindly let me know your opinion in this regard.

[KASTURI SETHI]

Dear Sir,

In first case, ST is payable on Service Portion of 40% in terms of Notification No.24/12-ST. Input Service credit is allowed for service portion only i.e Architect Services, finishing, Repair, renovation, alteration etc. Input service credit is not admissible for construction of building, part thereof, laying of foundation, structure for support of capital goods etc. The remaining 60% is not abatement which is provided under Notification No.26/12-ST. RCM is applicable in this case.

In second case, construction service is being provided on pure labour basis. Pure labour cannot be classified under Works Contract Service. It is to be classified under erstwhile construction service i.e. Commercial or Industrial Construction Service or Construction of residential complex as the case may be. In this situation, neither RCM is applicable nor benefit of Notification No.24/12-ST is available.100% ST is to be paid by the Contractor or Subcontractor who provides service on the value of pure labour. Input service credit is available for output service only.

[KASTURI SETHI]

In continuation of my reply dated 2.6.16, I add that sub-contractor is exempted from ST only when main contractor is exempted from payment of ST. It is natural that if sub-contractor pays ST, the main contractor would avail input service credit. Thus it would be revenue neutral but this does not change the character of ST paid.

Being Director of the company is a separate issue. This scenario has no effect.

[Ganeshan Kalyani]

Sir, reply submitted by Sri Kasturi Sir need no intervention. It is replied in all sense. Thanks for enriching our knowledge.

[Krishna Kumar A]

Thank you Kasturi Sir, Thanks alot