i want to know the diff b/w Rule 5 & N.N 12/2003??? Rule 5 specifies the material sold by service provider while providing service shall be included & taxable to ST.... While NN 12/2003 specifies for taxable sevive these material sold shall be excluded...
Notification No.12 / 2003 (subsequenly amended vide Notification No.12/2004) is a general exemption that goods sold by the service provider are not covered in the taxable value of service.
Rule 5 of Ser Tax (Determination of Value) indicates certain expenditures / cost incurred by the service provider which are included in the taxable value while rendering taxable service.
Rules 5 does not say anywhere that the goods sold to service receipient is to be included in the value of taxable service. It only envisages various situations wherein the service provider incurs certain expenditure and does not include this in the taxable value and claims seperately and calls for inclusion of those expenditure to be included in the taxable value of service.
10 September 2009
Under Rule 5 expenses are excluded, only if the expenses/costs are incurred as pure agent services, from the total value. Further, the rule 12/2004 (as amended) would give the instructions/clarifications the manner in which the material sold to recipient of services would be excluded from ST. Under rule 5 you have to substantiate that the service provider is acted as a pure agent otherwise the cost/expenses would be included in the total value. But in case of 12/2004 is not so.
Notification 12/2003 (as amended by 12/2004) is a general exemption notification. Example: A component is to be fixed to a machinery by a service engineer. Component is supplied on chargeable basis after charging VAT or CST as per the nature of sale transactions. THIS IS EXEMPTED. Service Engineer was deputed later to fix the component. Works was completed. Charges for the services were charged to customer. The taxable value for the purpose of service charges will be only the service charges as per the contract. The value of the material is exempted.
Rule 5 - Now extend the above example. The service engineer incurs, traveling expenses, telephone, postage while rendering the service job. These expenses, form part of the gross value of taxable service and on this element also the service tax is chargeable.
Rule 5 – Take the above example. If such expenditure / cost is not to be treated as taxable service, then such expenditure must have been incurred as PURE AGENT. In addition, there are eight conditions to Rule 5 (2) and they are to be satisfied along with Explanation 1. Since it would be difficult to satisfy all these conditions, bring such expenditure incurred under the taxable value of service is practicable and for the service provider the service tax charges is paid extra and for the service recipient the service tax paid on the services can be availed as CENVAT credit.
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