A Company A, registered under NSIC is in the Business of Electrical Maintenance repair and Overhauling. They primarily buy Copper Strips, Insulation material, Varnish, lubricants, paints etc. which are used in the repairing works.
The firm is registered under Service Tax as well as VAT. Presently they are charging only Service Tax while invoicing to their end customer on 40% on the Contract Value. On the contrary, While filing Quarterly return, they are paying 13.5% as VAT on the balance 60% of the Contract Value.
"A" does repairing work PAN India basis for multiple States customer like Bihar, Madhya Pradesh, Chattisgarh, Orissa etc..and they have their Workshop located in West Bengal. Any equipment coming for repair or overhauling from other States arrives through the waybill provided by 'A".
My queries: is the Tax structure of Service Tax on 40% and VAT@13.5% on Balance 60% of the Contract correct or does it falls under other type of Tax category like WCT or Service Contracts structure? What is the current Applicable Tax Law?
10 March 2012
The taxabality will depend on the substance of transaction. if it is divisible contract better make two separate agreement and charge service tax on service part on actual basis not 40% basis and similarly VAT as per actual on actual material sale. And if it is indivisible contract you should opt WCT. The rate of VAT is depend on state to state basis where transaction is being executed. Ther service tax there is two option 1st is under Rule 2A valuation and other is 4.12% on Gross Value
11 March 2012
Their nature of business typically leads to indivisible contracts (since isolation of material and labour is diffcut). In that case, ideally "A" should goes into composition scheme of 4.12%: Now, what are steps to followed by the Company's Tax Consultant. Will their be any discontinuation in generation of the online Waybills for bringing in Motors and Transformers from Customer premises?
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