Wednesday, 26 May 2010

Service tax on laying of cables under or alongside roads and similar activities

Circular No. 123/05/2010-ST, dated 24-5-2010

Disputes have arisen in some parts of the country regarding applicability of service tax on certain activities such as shifting of overhead cables to underground on account of renovation/widening of roads; laying of electrical cables under or alongside roads/railway tracks; between grids/sub-stations/transformers the distribution points of residential or commercial complexes and such activities as electrification of railways, installation of street-lights, traffic lights, flood-lights. This clarification takes into account the taxability of different activities taking into account the scope of all services (such as site formation/excavation/ earth moving service, commercial or industrial construction services; erection, commissioning or installation services; or works-contract service) that are presently taxable as well as those which are covered under the Finance Act, 2010.
2. Scope of certain taxable services in brief;
(i)‘Commercial or industrial construction services', in brief, cover construction of and the completion, finishing, repair, alteration, renovation, restoration or similar activities pertaining to buildings, civil structures, pipelines or conduits. Therefore, only such electrical works that are parts of (or which result in emergence of a fixture of) buildings, civil structures, pipelines or conduits, are covered under the definition of this taxable service. Further, such activities undertaken in respect of roads, railways, transport terminals, bridges, tunnels and dams are outside the scope of levy of service tax under this taxable service.
(ii) Under ‘Erection, commissioning or installation services', the activities relevant to the instant issue are (a) the erection, commissioning and installation of plant, machinery, equipment or structures; and (b) the installation of electrical and electronic devices, including wiring or fitting there for. Thus, if an activity does not result in emergence of an erected, installed and commissioned plant, machinery, equipment or structure or does not result in installation of an electrical or electronic device (i.e. a machine or equipment that uses electricity to perform some other function) the same is outside the purview of this taxable service.
(iii) ‘Works Contract' incorporates the inclusions and exclusions of the aforementioned two taxable services (amongst others) and it is the nature of the contract (i.e. a contract wherein the transfer of property in goods involved is leviable to a tax as sale of goods) rather than the nature of activities undertaken, that distinguishes it from the previously stated taxable services. Thus, even in the case of ‘works contract' if the nature of the activities is such that they are excluded from aforesaid two services then they would generally remain excluded from this taxable service as well.
(iv) ‘site formation and clearance, excavation, earthmoving and demolition services' are attracted only if the service providers provide these services independently and not as part of a complete work such as laying of cables under the road
3. The taxable status of various activities, on which disputes have arisen
Based on the foregoing, the following would be the tax status of some of the activities in respect of which disputes have arisen,-

Shifting of overhead cables/wires for any reasons such as widening/renovation of roads
Not a taxable service under any clause of sub-section (105) of section 65 of the Finance Act, 1994
Laying of cables under or alongside roads
Not a taxable service under any clause of sub-section (105) of section 65 of the Finance Act, 1994
Laying of electric cables between grids/sub-stations/transformer stations en route
Not a taxable service under any clause of sub-section (105) of section 65 of the Finance Act, 1994
Installation of transformer/ sub-stations undertaken independently
Taxable service, namely Erection, commissioning or installation services [section 65 (105] (zzd].
Laying of electric cables up to distribution point of residential or commercial localities/complexes
Not a taxable service under any clause of sub-section (105) of section 65 of the Finance Act, 1994
Laying of electric cables beyond the distribution point of residential or commercial localities/complexes.
Taxable service, namely commercial or industrial construction' or ‘construction of complex' service [section 65(105) (zzq)/(zzzh)], as the case may be.
Installation of street lights, traffic lights flood lights, or other electrical and electronic appliances/devices or providing electric connections to them
Taxable service, namely Erection, commissioning or installation services [section 65 (105] (zzd].
Railway electrification, electrification along the railway track
Not a taxable service under any clause of sub-section (105) of section 65 of the Finance Act, 1994

4. The conclusions drawn above are essentially general in nature and would have to be applied in an individual case depending upon its facts and circumstances. The pending disputes /cases may be decided based on the clarifications contained in this circular.

Monday, 10 May 2010

Service tax circular giving relief for claiming CENVAT

Circular No. 122/03/2010 – ST

F. No. 137/71/2009 – CX.4
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise and Customs
New Delhi, dated the 30th April 2010


The Chief Commissioners of Central Excise and Service Tax (ALL),
The Director General of Service Tax
The Director General of Audit
The Director General of Central Excise Intelligence,
The Commissioners of Service Tax (ALL)


Subject: Clarification regarding availment of credit on input services - reg


Representations have been received by Board regarding denial of CENVAT credit on input services in certain cases. Some of the cases where doubts have been raised by field formations are given below:

2.         As per Rule 4 (7) of the CENVAT Credit Rules, 2004, the CENVAT credit on input services is available only on or after the day on which payment of the value of input service and service tax is made. The section 67 (4) of the Finance Act, 1994, provides that gross amount charged includes payment made by issue of credit / debit notes or by entries in the books of account, where the transaction is with any associated enterprise.

A doubt has arisen as to whether CENVAT credit can be taken by “Associate Enterprises” when debit is made in book of accounts or when book adjustments/ debit or credit in accounts is made, or if the CENVAT credit of the service tax paid on input service is available only after the actual payment of the value of input service has been made in money terms.

3.         As per sub-rule (7) of Rule 4 of the CENVAT Credit Rules, 2004,
“Credit in respect of input service shall be allowed, on or after the day on which payment is made of the value of input service and the service tax paid or payable as is indicated in invoice, bill or as the case may be, challan referred to in Rule 9”.

A doubt raised is as to whether the receiver of input service can take credit only after the full value that is indicated in the invoice, bill or challan raised by the service provider, and also the service tax payable thereon, has been paid. It has been represented that in many cases, after the invoice is issued by the service provider, the service receiver does not make the full payment of the invoiced amount on account of discount agreed upon after issuance of invoice; or deducts certain amount due to unsatisfactory service; or withholds some amount as security to be held during contract period. Due to these reasons the value paid may not tally with the amount indicated in the invoice, bill or challan. In such cases the department has raised objections to the taking of credit as it does not meet the requirement of the said sub-rule (7).

4.         Thus the following issues relating to availment of CENVAT credit need clarification,-
Whether CENVAT credit can be claimed

(a)             when payments are made through debit/credit notes and debit/credit entries in books of account or by any other mode as mentioned in section 67 Explanation (c) for transactions between associate enterprises; or

(b)             where a service receiver does not pay the full invoice value and the service tax indicated thereon due to some reasons.

5.         Matter has been examined and clarification in respect of each of the above mentioned issues is as under,-

(a) When the substantive law i.e. section 67 of the Finance Act, 1994 treats such book adjustments etc., as deemed payment, there is no reason for denying such extended meaning to the word ‘payment’ for availment of credit. As far as the provisions of Rule 4 (7) are concerned, it only provides that the CENVAT credit shall be allowed, on or after the date on which payment is made of the value of the input service and of service tax. The form of payment is not indicated in the same and the rule does not place restriction on payment through debit in the books of accounts. Therefore, if the service charges as well as the service tax have been paid in any prescribed manner which is entitled to be called ‘gross amount charged’ then credit should be allowed under said rule 4 (7). Thus, in the case of “Associate Enterprises”, credit of service tax can be availed of when the payment has been made to the service provider in terms of section 67 (4) (c) of Finance Act, 1994 and the service tax has been paid to the Government Account.

(b) In the cases where the receiver of service reduces the amount mentioned in the invoice/bill/challan and makes discounted payment, then it should be taken as final payment towards the provision of service. The mere fact that finally settled amount is less than the amount shown in the invoice does not alter the fact that service charges have been paid and thus the service receiver is entitled to take credit provided he has also paid the amount of service tax, (whether proportionately reduced or the original amount) to the service provider. The invoice would in fact stand amended to that extent. The credit taken would be equivalent to the amount that is paid as service tax. However, in case of subsequent refund or extra payment of service tax, the credit would also be altered accordingly.

6.         The contents of this circular may be suitably brought to the notice of the field formations. In case any difficulty is faced in implementing these instructions, the same may be brought to the notice of the undersigned.

Yours faithfully

(Himanshu Gupta)
Commissioner (Service Tax)
CBEC, New Delhi

Monday, 3 May 2010

Workers of contractor not eligible for ESI benefits

The workers of a contractor engaged by an establishment do not get the benefits of the Employees State Insurance Corporation Act, the Supreme Court stated last week in the judgment, Managing Director, Hassan Co-operative Milk Producer’s Society Union Ltd vs ESI Assistant Regional Director.
The ESI authorities demanded contribution to the fund from the milk coop maintaining that the loaders of the contractor engaged to bring milk to the main plant were in effect engaged by the coop. The ESI tribunal and the Karnataka high court upheld the demand. But on appeal, the Supreme Court overruled them and stated that the coop had no direct control over the workers of the contractors and had no supervisory power over them. The wages were not paid by the coop. Therefore it was not bound to pay the contribution under the law.

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