Pradeep Jain - Chartered Accountant

Query

(kunal reshamwala) Posted On: 17 Sep, 2012

Whether there is no cenvat credit possible when the service provided is 'Renting of Immovable Property' Kindly clarify.

Under negative list, every such activity which falls in the definition of “service” as given in clause 44 of section 65B of the Finance Act are taxable unless otherwise exempted. The exemptions to certain services have been given in the negative list and also in notification no. 25/2012-ST DT 20.6.12. The following exemptions are related to renting of immovable property services as given in negative list and mega exemption notification:- Under Negative list:- •At clause no. (m) of section 44:- Renting of residential dwelling for use as residence. Under mega exemption notification:- •At entry no. 5:- Renting of precincts of a religious place meant for general public. • At entry no. 9:- Services provided to or by an educational institution in respect of education exempted from service tax, by way of,- (a) auxiliary educational services; or (b) renting of immovable property; • At entry no. 18:- Renting of hotels, inn, guest house, club, campsite or other commercial places meant for residential or lodging purpose, having declared tariff of a room below rupees one thousand per day or equivalent is exempt. Since the above referred services are totally exempted under service tax law, no Cenvat Credit is available if the service provider is SOLELY providing these services. However, concept of declared service has also been introduced in the negative list era where certain activities are declared to be a service for the purpose of levying the service tax. The list of declared services has been prescribed in section 66E which reads as follows:- “66E. The following shall constitute declared services, namely:- (a) renting of immovable property; (b) construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly, except where the entire consideration is received after issuance of completion certificate by the competent authority. Explanation.- For the purposes of this clause,- (I) the expression "competent authority" means the Government or any authority authorised to issue completion certificate under any law for the time being in force and in case of non-requirement of such certificate from such authority, from any of the following, namely:- (A) architect registered with the Council of Architecture constituted under the Architects Act, 1972; or (20 of 1972.) (B) chartered engineer registered with the Institution of Engineers (India); or (C) licensed surveyor of the respective local body of the city or town or village or development or planning authority; (II) the expression "construction" includes additions, alterations, replacements or remodelling of any existing civil structure; (c) temporary transfer or permitting the use or enjoyment of any intellectual property right; (d) development, design, programming, customisation, adaptation, upgradation, enhancement, implementation of information technology software; (e) agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act; (f) transfer of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods; (g) activities in relation to delivery of goods on hire purchase or any system of payment by installments; (h) service portion in the execution of a works contract; (i) service portion in an activity wherein goods, being food or any other article of human consumption or any drink (whether or not intoxicating) is supplied in any manner as a part of the activity.” Thus, the list of services prescribed under “Declared services” includes the “Renting of immovable property services”. Thus, all the types of renting of immovable property services are taxable undoubtedly other than those prescribed under negative list and mega exemption notification as discussed above. Further, Notification no. 26/2012-ST dated 20.6.2012 prescribes the abatement of 40% in case of "6. Renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes." Thus, the abatement of 40% is allowed in case of renting of hotels, inns, guest houses, clubs, campsites or other commercial places meant for residential or lodging purposes. Further, where the abatement is claimed for these services, the credit is not allowed on ‘Inputs’ and ‘Capital goods’. As such, where these services are provided; the credit of “Input services” is allowed alongwith abatement. In respect of all the other types of immovable properties (which are taxable beyond any doubt by virtue of section 66E); the service tax is payable to the full applicable rates. Further, no specific prohibition has been imposed regarding the allowability of Cenvat Credit on these services. As such, we are of opinion that the Cenvat Credit is allowed on all the other types of renting of immovable property services. However, if the various types of immovable property services are provided, some exempted and some taxable, provisions of rule 6 of Cenvat Credit Rules, 2004 will apply accordingly. Lastly, in context of service tax by way of positive list, circular no. 98/1/2008-ST dated 4.1.2008 was issued regarding Cenvat Credit on renting of immovable property service. The relevant portion of this circular is as follows:- Reference Code- 096.01 / 04.01.08 Issue:- Commercial or industrial construction service [section 65(105)(zzq)] or works contract service [section 65(105)(zzzza)] is used for construction of an immovable property. Renting of an immovable property is leviable to service tax [section 65(105)(zzzz)]. Whether or not, commercial or industrial construction service or works contract service used for construction of an immovable property, could be treated as input service for the output service namely renting of immovable property service under the CENVAT Credit Rules, 2004? Clarification:- Right to use immovable property is leviable to service tax under renting of immovable property service. Commercial or industrial construction service or works contract service is an input service for the output namely immovable property. Immovable property is neither subjected to central excise duty nor to service tax. Input credit of service tax can be taken only if the output is a ‘service’ liable to service tax or a ‘goods’ liable to excise duty. Since immovable property is neither ‘service’ or ‘goods’ as referred to above, input credit cannot be taken. Thus, in the above referred circular, it was clarified that the credit on input services is not available if the services provided by the assessee are renting of immovable property services. However, now the immovable property has been specifically declared as taxable service under section 66E. Further no specific restriction has been imposed regarding the availment of Cenvat Credit on these services in context of negative list. Thus, we can say that the above circular will not hold good now under negative list scenario. We hope the above will satisfy your query. Disclaimer: This opinion is given to best of knowledge and belief. The service tax is a complicated law and interpretations of the law keep on changing based on judicial discipline and Board’s clarifications. Our opinion is also subject to the same.

Comments

Whether there is no cenvat credit possible when the service provided is 'Renting of Immovable Property' Kindly clarify.

Query