The Hindu Business Line : ‘No input credit on construction services used in immovable property’

The Finance Ministry has taken a stand that service tax paid on construction services used in an immovable property cannot be adjusted against the service tax payable on the renting of such a property for commercial purposes.

Renting of immovable property for commercial purposes was brought under the service tax net in Budget 2007-08.

Official sources said that the industry had approached the Finance Ministry seeking clarification on whether construction service or works contract service used for construction of an immovable property could be treated as input service for the output service of renting of an immovable property under the Cenvat Credit Rules 2004.

“We have taken the position that input credit cannot be taken. Construction service is an input service for the output service namely ‘immovable property’. Immovable property is neither subjected to service tax nor excise duty. Input credit of service tax can be taken only if the output is a ‘service’ liable to service tax or ‘goods’ liable to excise duty,” a senior Finance Ministry official told Business Line.

Meanwhile, the Finance Ministry has also clarified that a works contract service provider was not eligible to take credit of excise duty paid on goods involved in the execution of works contract.

Currently, VAT/sales tax is payable on the transfer of property in goods involved in the execution of a works contract. Service tax on the works contract is levied on gross amount charged for the contract less the value of the transfer of property in goods involved in the execution of works contract.

The issue before the Finance Ministry was whether or not the excise duty paid on goods subject to levy of VAT/sales tax under works contract service could be taken as credit under Cenvat credit service rules.

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