Input Service Redefined

An Article on Input Services
Presented By : Mr. S.Samdani, FCS
Supported by : Ms. Preeti Mishra
Input services - Redefined
The basic understanding on the concept of Input Services has been detailed as
follows
(A) DEFINITION :
Rule 2(l) – CENVAT CREDIT RULES, 2004
“Input Service” means any service,
(i) used by a provider of output service for providing an output service; or
(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the
manufacture of final products and clearance of final products upto the place
of removal,
and includes services used in relation to modernisation, renovation or repairs of
a factory, premises of provider of output service or an office relating to such
factory or premises, advertisement or sales promotion, market research, storage
upto the place of removal, procurement of inputs, accounting, auditing, financing,
recruitment and quality control, coaching and training, computer networking,
credit rating, share registry, security, business exhibition, legal services, inward
transportation of inputs or capital goods and outward transportation upto the place
of removal;
but excludes –
(A) service portion in the execution of a works contract and construction
services including service listed under clause (b) of section 66E of the
Finance Act (hereinafter referred as specified services) in so far as they are
used for –
(a) construction or execution of works contract of a building or a civil
structure or a part thereof ; or
(b) laying of foundation or making of structures for support of capital goods,
except for the provision of one or more of the specified services; or
(B) services provided by way of renting of a motor vehicle, in so far as they
relate to a motor vehicle which is not a capital goods; or

(BA) service of general insurance business, servicing, repair and maintenance, in
so far as they relate to a motor vehicle which is not a capital goods, except
when used by –
(a) a manufacturer of a motor vehicle in respect of a motor vehicle
manufactured by such person; or
(b) an insurance company in respect of a motor vehicle insured or
reinsured by such person ; or
(C) such as those provided in relation to outdoor catering, beauty treatment,
health services, cosmetic and plastic surgery, membership of a club, health
and fitness centre, life insurance, health insurance and travel benefits
extended to employees on vacation such as Leave or Home Travel
Concession, when such services are used primarily for personal use or
consumption of any employee.
(B) ANALYSIS :
The definition of “input service” is broad and can be categorized in three parts –
First is main part, second is inclusive part and the third part covers exclusions.
(a) Main part :
First part i.e the main part of the definition is restrictive in scope as it covers
input services used for providing taxable output service or used by
manufacturer, directly or indirectly, in relation to manufacture or clearance of
final product upto the place of removal.
(b) Inclusions:
(i) Meaning of “includes”
The inclusive part of the definition expands the scope of the definition. It
covers input services used “in relation” to various activities for which
CENVAT credit may be availed. An illustrative list is listed as below
Sr. # Services
01. Modernisation, renovation or repairs of a factory, premises of
provider of output service, or an office relating to such factory or
premises. (Wherein such goods/services are produced).
02. Advertisement or Sales Promotion.
03. Market Research
04. Storage upto the place of removal.

05. Procurement of Inputs.
06. Accounting
07. Auditing
08. Financing
09. Recruitment and Quality Control.
10. Coaching and Training
11. Computer Networking
12. Credit Rating
13. Share Registry
14. Security.
15. Business Exhibition.
16. Legal Services.
17. Inward transportation of inputs or capital goods.
18. Outward transportation upto the place of removal.
# Here it is to be noted that this is just an illustrative list and hence the
input services are not restricted to this list only.
(ii) Meaning of “in relation to” :-
The expression “in relation to” (so as ‘pertaining to’) is an expression of
expansion and not of contraction, which might both have a direct
significance as well as an indirect significance depending on the context.
They are not words of restrictive content.
(iii) Services covered in inclusive part of the definition :-
Any activity of manufacture or provision of service requires five M’s
- Men
- Material
- Machines
- Money
- Minutes

Input services relating to any of these would be eligible, except for those
specifically excluded in the third part of the definition of “input services”
which covers exclusions.
(iv) Place of Removal :-
The concept of ‘removal’ is borrowed from Central Excise and hence
applies only to a manufacturer and not a service provider.
According to Section 4(3) (c) of the Central Excise Act,
Place of Removal means
(i) a factory or any other place or premises of production or
manufacture of the excisable goods;
(ii) a warehouse or any other place or premises wherein the excisable
goods have been permitted to be deposited without the payment of
duty;
(iii) a depot, premises of a consignment agent or any other place or
premises from where the excisable goods are to be sold after their
clearance from the factory.
from where such goods are removed.
Interpretation in simplified terms.
Place of Removal simply means the place from where such goods are
removed for sale. It may be a factory, or a warehouse, or a depot, or
premises of a consignment agent or any other place as well.
Depot Sales
It has been clarified that in case of depot sale, depot is the place of
removal. Hence, service tax on freight upto depot will be eligible for
Cenvat credit whether the duty is payable under section 4 (ad valorem) or
section 4A (MRP basis)
Port is place of removal in case of exports
In case of exports, the place of removal is port where export documents
are presented to the customs office.
[Kunal Granites v. CCE (2007) 215 ELT 515 =2007 TIOL 930 (CESTAT) ]

(c) Exclusions :
The definition specifically excludes certain goods/services for which CENVAT
credit cannot be availed. The exclusive or negative part is further bifurcated in
four clauses, (A), (B), (BA) and (C). These services would not be eligible
even if these would be eligible as per inclusive part of the definition of “input
service”.
(A) Services specifically excluded under clause (A)
Following services have been specifically excluded from the definition of
“Input Services” (referred to as “specified services”)
(i) Service portion in the execution of –
(a) Works Contract
(b) Construction Services
(c) Services under Section 66E(b) of the Finance Act.
# List of Services under Section 66E(b)
Sr. # Services
01.
Construction
of
A Complex
02. Building
03. Civil Structure or part thereof
04. A complex or building intended for sale, wholly or partly
if they [i.e (i) -- (a), (b) & (c) above] are used for -
(a) construction or execution of works contract of a building or a part
thereof, or
(b) laying of foundation or making of structure of capital goods.
Exclusions in “exclusions” :
(i) These “specified services” listed above, will be eligible for Cenvat
Credit only if used for any these “specified services”.
For e.g.: Architect Services will be eligible as input service if used for
Construction service or Works Contract Service.

(ii) A complex or building intended for sale to a buyer, wholly or partly,
shall be a service except if the entire consideration is received after
issuance of completion – certificate by the Competent Authority.
A. “Competent Authority” for this purpose shall mean –
a) An Architect registered with the Council of Architecture
constituted under the Architects Act, 1972
b) Chartered Engineer registered with the Institution of
Engineers(India)
c) Licensed surveyor of the respective local body of the city
or town or village or development or planning authority.
B. “Construction” includes
- Additions
- Alterations
- Replacements or
- Remodeling
of any existing civil structure
(B) Services specifically excluded under clause (B) :
(i) Services provided by way of renting of a motor vehicle, in so far as
they relate to a motor vehicle, which is not a capital goods.
However, these services will be eligible as “input services” if used for
provision of taxable services for which Cenvat Credit of Motor Vehicle is
available as Capital Goods.
(C) Services specifically excluded under clause (BA) :
Following services shall not be eligible as “input services”, if they relate
to a motor vehicle, which is not a capital good;
Service of -
(a) General Insurance Business
(b) Servicing
(c) Repair & Maintenance
Exclusions in “exclusions” :
The services listed above, shall be eligible as “input service” only to the
following:
a) Where motor vehicle is eligible as Capital Goods

b) Where such service is used by a Manufacturer of motor vehicle in
respect of vehicles manufactured by him
c) Where such service is used by General Insurance Company in
respect of vehicles insured by them.
(D) Services specifically excluded under clause (C) :
Certain Services are specifically excluded under this sub-clause only
when such services are used primarily for personal use or
consumption of any employee. These services are as follows :
a. Outdoor catering
b. Beauty treatment
c. Health services
d. Cosmetic and plastic surgery
e. Membership of a club
f. Health and fitness centre
g. Life insurance
h. Health insurance
i. Travel benefits extended to employees on vacation such as Leave
or Home Travel concession.
Exclusions in “Exclusions” - Examples
(i) Outdoor catering for “sales promotions” would be eligible, even if
some employees attend lunch/dinner, since; it is not primarily for
personal use or consumption of employees.
(ii) Mobile Phones to employees mainly for business purposes should
be eligible even if incidentally used for personal purposes.
(iii) Club Membership fee of a director (who is not employee) would be
eligible. Corporate club membership (without naming any specific
employee) should be eligible.
# Here it should be noted that these examples are provided just for an
understanding and should not be considered as a restricted list.

Input Service Redefined

More Related Content

What's hot (20)

Similar to Input Service Redefined (20)

Recently uploaded (20)

Input Service Redefined