Allow ITC on Stock in case of Work Contract services under GST : ICAI Suggestions

Suggestions on GST Acts (July 2017) by Institute of Chartered Accountants of India

5. Credit of eligible duties in respect of inputs held in stock allowed for persons providing works contract services AND availing benefit under Notification No. 26/2012- Service Tax

Section 140(3) of the CGST Act, 2017 provides that a registered person, who was not liable to be registered under the existing law, or who was engaged in the manufacture of exempted goods or provision of exempted services, or who was providing works contract service and was availing of the benefit of notification No. 26/2012-Service
Tax, dated 20.06.2012 or a first stage dealer or a second stage dealer or a registered importer, or a depot of a manufacturer, shall be entitled to take, in his electronic credit ledger, credit of eligible duties in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the appointed day subject to the specified conditions.

Issue

Notification No. 26/2012 – Service tax dated 20.06.2012 provides for abatement in case of construction of residential complex service when the gross value of the service includes the value of land.

The services specified in section 140(3) include providers of works contract services and availing abatement benefits under Notification No. 26/2012- Service Tax. However, works contract service providers are also eligible for paying service tax as per Rule 2A of Service tax (Determination of Value) Rules, 2006 which is @ 40% of the construction value in the case of original works contracts.

There is no specific provision for a works contract service provider, to avail input credit of Excise duties paid on various materials in stock. Section 140 (3) covers only those works contract service providers, who pay service tax including land value. Many Contractors and residential / commercial construction service providers are not
following Notification 26/2012 instead follow Rule 2A of Service tax (Determination of Value) Rules, 2006. Disputes may arise as to how works contract service providers following different valuation mechanisms can avail input tax credit for the inputs lying in stock.

Suggestions

It is suggested that the provision for allowing credit of eligible duties in respect of inputs held in stock also be allowed for persons providing works contract services eligible for paying service tax as per Rule 2A of Service tax (Determination of Value) Rules, 2006 or those who have chosen to bifurcate the material and labour value based
on actuals in addition to existing provisions.

Read ICAI Suggestions on GST Act to Govt : July 2017

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