Our Client is a two-wheeler dealer for a leading brand in India.
The Client pays excise duty on the two wheelers purchased from the manufacturer. The Client also charges Service Tax on the vehicle service carried out (free + paid service). Can this Company claim credit for the excise duty paid on vehicles purchased from the manufacturer against the service tax payable towards vehicle service.
07 October 2010
No it cannot as the 2 w are not used for providing the service. However the GTA paid, insurance for the show room, telephone etc would be available as per the CCR. Pl confimr that Rule 6 is not applicable to you.
Thanks a lot for the input. Yes Rule 6 is not applicable to our client.
Continuing on the aforesaid query, in every vehicle service (free and paid service), there are two elements, labour and parts. The parts are purchased from the vehicle manufacturer and there is an element of excise duty involved in the parts purchased. Service tax is chargeable on the labour component. Can these two be set off and the net service tax remitted to Government.
01 August 2024
In the scenario where your client, a two-wheeler dealer, is dealing with both excise duty and service tax, the treatment of these taxes and credits is subject to specific regulations. Here’s how to approach the situation:
### **1. **Excise Duty and Input Credit:**
**Excise Duty Paid on Vehicles:** - **Excise Duty on Purchase of Vehicles:** Excise duty paid on the purchase of vehicles from the manufacturer cannot be claimed as input credit against the service tax payable on vehicle servicing. The reason is that excise duty and service tax fall under different tax regimes and cannot be cross-utilized. - **Excise Duty Scope:** The excise duty paid on the purchase of vehicles is not eligible for input credit in the context of service tax. It was traditionally considered a cost to be absorbed by the business.
### **2. **Service Tax on Vehicle Servicing:**
**Service Tax on Labour and Parts:** - **Labour Component:** Service tax is chargeable on the labour component of the vehicle servicing. This means you need to charge service tax on the service provided, which is related to labour. - **Parts and Excise Duty:** For the parts used in vehicle servicing, which are purchased from the manufacturer and include excise duty, you cannot set off the excise duty against the service tax. The excise duty paid on parts is part of the cost of goods and does not impact the service tax liability directly.
### **3. **Set-Off of Excise Duty Against Service Tax:**
- **No Set-Off Allowed:** Excise duty paid on parts used in servicing cannot be set off against the service tax payable on the labour component of the servicing. Excise duty and service tax are separate tax levies and do not allow cross-offsetting.
### **4. **Accounting and Tax Filing:**
- **Separate Treatment:** Maintain separate records for excise duty and service tax. Ensure that the excise duty on vehicle purchases and the service tax on labour are recorded correctly in your accounting system. - **Service Tax Remittance:** Calculate the service tax liability on the labour component of vehicle servicing. Pay the service tax based on the total service tax calculated for the labour component, as excise duty on parts does not offset this liability.
### **Summary:**
- **Excise Duty on Vehicles:** Not eligible for input credit against service tax payable. - **Service Tax on Labour:** Charge service tax on the labour component of vehicle servicing. - **Parts with Excise Duty:** Cannot be used to set off service tax payable on labour.
For detailed guidance and specific legal references, consult the relevant sections of the **Central Excise Act** and **Service Tax Rules**. Ensure compliance with the latest regulations and maintain accurate records for both excise duty and service tax.
CAclubindia
