Negative List of Input Services
(By CA. Vikas Khandelwal)
Definition of Input Service, as provided under rule 2(l) of CENVAT Credit Rules, 2004, as amended w. e. f. 01.04.2011 provides certain exclusions. CENVAT credit in respect services specifically excluded from the definition of input services cannot be claimed by provider of taxable services or manufacturer of excisable goods. As these services are specifically excluded, even Courts shall not allow credit in respect of those services. Therefore, to avoid interest and penalty, due Care must be taken to ensure that CENVAT Credit in respect of following services is not availed:
Input Services in respect of which CENVAT credit is specifically denied
a) Architect’s Services,
b) Port Services & Other Port Services,
c) Airport Services,
d) Commercial or Industrial Construction Services,
e) Complex Construction Services,
f) Works Contract Services
If these six aforesaid categories of taxable services are used for the following purposes:
i. Construction of a building or a civil structure or a part thereof; OR
ii. Laying of foundation or making of structures for support of capital goods.
(How port or airport service is used for construction, etc. services? If above activities are done within port or airport area, they are covered under the category of Port Services or Airport Services, as the case may be)
Exception: Earlier, CENVAT credit in respect of input services used for construction of a building or a civil structure, etc. (e.g. factory of excisable goods and premises of input service provider) was available. Now, the same has been specifically denied.
Here, the intention is to deny the CENVAT credit in respect of input services used for:
i. Construction of office or factory of manufacturer of service provider, as the case may be; OR
ii. Foundation or structure work for capital goods to be used by service provider or manufacturer.
However, there is no intention to disallow CENVAT Credit to main contractor who sub-contracts these activities. Accordingly, an exception has been provided that CENVAT credit in respect of aforesaid six categories shall be allowed if the same are used for providing services falling one or more categories of services.
(a) ‘A’ providing CA services. He engages provider of “Commercial Construction Services” and “Architect Services” for construction of his office. CENVAT credit in respect of both the categories of services shall not be allowed to him.
(b) ‘B’ is engaged in providing construction services and covered under “Commercial construction Services” and “Works Contract Services”. B uses services of “Architect’s Services”. CENVAT credit in respect of “Architect’s Services” shall be allowed to him since B is using the “Architect’s Services” (which is one of the six specified services) for providing construction services falling under “Commercial Construction Services” and “Works Contract Services” (these are also two of the six specified categories of services)
Following Services if used for Motor Vehicle:
(i) General Insurance Service
(ii) Supply of Tangible goods Services
(iii) Rent a CAB Scheme Operator Services
(iv) Service station services (i.e. Repair, Reconditioning or restoration of Motor vehicle)
Exception: As per the definition of Capital Goods as provided under rule 2(a) of CENVAT Credit Rules, 2004, CENVAT credit in respect of motor vehicle as capital goods is available to following categories of services only:
a) Courier Services
b) Tour Operator’s Services
c) Rent-a-Cab Scheme Operator’s Services
d) Cargo Handling Services
e) Transport of Goods by Road Services (by a Goods Transport Agency)
f) Outdoor Caterer’s Services
g) Pandal or Shamiana Contractor’s Services
Now, the input services have been made at par with the definition of capital goods. Now, CENVAT credit in respect of above mentioned four services (for motor vehicle) shall be allowable only if these are used for providing services mentioned (a) to (g) hereinabove. In other words, services used in relation to motor vehicle shall be available only to provider of aforesaid services. (It seems that according to Central Government, motor vehicle is essentially required for providing these services only)
(a) ‘A’ is provider of “Management or Business’s Consultant’s Services”. He receives and uses following input services:
(i) Computer on hire (taxable under “Supply of tangible goods Services”……CENVAT credit shall available to ‘A’ since ‘Supply of Tangible Goods Services’ is not for motor vehicle.
(ii) Car on hire (taxable under “Supply of tangible goods Services”……… CENVAT credit shall not available to ‘A’ since ‘Supply of Tangible Goods Services’ is for motor vehicle.
(iii) Insurance for a car owned by him…..……… CENVAT credit shall not available to ‘A’ since ‘Supply of Tangible Goods Services’ is for motor vehicle.
(iv) Insurance for equipment used for providing taxable services……… CENVAT credit shall available to ‘A’ since ‘Supply of Tangible Goods Services’ is not for motor vehicle.
(b) ‘B’ is provider of “Courier Services”. For providing services its services, He receives and uses following input services:
(i) Car on hire (taxable under “Supply of tangible goods Services”.
(ii) Insurance for a car owned by him.
(iii) Service station’s Services for receiving repair services for its motor vehicle
(iv) Rent-a Cab operator’s Services
……….Since ‘B’ is providing Courier Services (i.e. a service covered under clause (a) to (g) in respect of which credit of motor vehicle related services is available), he shall be eligible to claim CENVAT credit in respect of all specified services.
Services received for personal consumption of the employees such as:
(i) Outdoor Caterer's Services
(ii) Beauty Parlour's Services
(iii) Health Related Services
(iv) Health Club & Fitness Centre's Services
(v) Cosmetic & Plastic Surgery Services
(vi) Services Provided by Club or Association
(vii) Life Insurance Business Services
(viii) Health insurance services (medi-claim)
(ix) Travel benefits extended to employees on vacation such as Leave or Home Travel Concession
In simple words, If a business entity receives any services for personal consumption of its employees, the CENVAT credit in respect of such services shall not be available.
Exception: No exception.
Authored By: CA. Vikas Khandelwal,
610, GD ITL Twin Towers,
B-08, Netaji Subhash Place,
Ring Road, Pitampura
Ph: 011- 27356481,
M- 91 9899740370