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Q. > Please Help: SERVICE TAX INPUT CREDIT
A PVT LTD CO. HVING PROPERTY LET OUT TO BANKS SHOWING INCOME AS HOUSE PROPERTY AND FILING ALSO SERVICE TAX RETURN ON RENTAL INCOME. NOW ONE ANOTHER PROPERTY THEY ARE PURCHASING WHICH IS UNDER CONSTRUCTION AND THAT WILL BE GIVEN TO DIRECTORS FOR THEIR RESIDENCE PURPOSE. CAN THE SERVICE TAX PAID TO BULIDERS FOR THAT PROPERTY CAN BE CLAIMED AS INPUT CREDIT FROM TAX DUE ON RENTAL INCOME OF OLD PROPERTY LET OUT TO BANK. PLZ GIVE THE ADVICE IF CAN.. THANKS
answered Sep 01, 2011 by Ashish Karundia , New Delhi
Dear Sandeep,
Explanation 1(d) to Section 65 (105) (zzzz) of the Finance Act, 1994 defining Renting of Immovable property interalia provides that immovable property does not include building used for residential purposes/accommodation. In the instant case, the property is let out to directors for residential purposes and therefore the same will not treated as taxable service and accordingly will not attract service tax.
Rule 2(l) of Cenvat Credit Rules, 2004 interalia defines input service as any service used by the provider of taxable service for providing output service. Here, the service tax paid is by the Company for the construction of building to be let out for residential purpose. It may be noted that letting out building for residential purpose is not taxable service.
Here, construction of complex/ commercial construction service availed will not be treated as input service as the same is not used for providing any taxable output service. Therefore, the credit of service tax paid on the same cannot be availed by the Company and accordingly cannot be utilised for discharging service tax in respect of other property.
answered Sep 14, 2011 by Ashish Karundia , New Delhi
Good Point Chetan..... Kudos for highlighting
Experts Panelist
Comments
Chetan Agrawal
14-Sep-2011 , 04:50:02 pmDear Sandeep, in your query the very first question which arises is whether credit of Service tax paid to builder under the taxable category of 'Commercial or Industrial construction service' or 'Construction of residential complex service' is available to the buyer. Only thereafter question of utilizing the same will arise. As far as credit of the service tax levied by the builder is concerned the same will not be available. Rule 2(l) of the Cenvat credit rules, 2004 defines input services in respect of which credit of service tax paid will be available. However, this definition excludes certain taxable services for certain specified purposes not to be held as input service. One of such exclusion provides that provision of following services, for Construction of building or civil structure or part thereof, will not treated as input service and hence not eligible of credit: 1) Port services 2) Other port services 3) Airport Services 4) Commercial or Industrial Construction services 5) Construction of residential complex service 6) works contract service However, if the above six specified services are provided by any person to any other person providing those six specified services, then in that case such services shall be treated as input service for that other person.(eg. services provided by sub-contractor to a builder will be treated as input service for the builder) Therefore, in light of the above discussion, in your case if the builder is charging service tax under the taxable category of 'Commercial or Industrial Construction services' or 'Construction of residential complex service' then such provision of such service will not be treated as input service and is hence not eligible for credit. And as the credit is not available, question of utilizing the same does not arises.