Service receiver liability and input claim

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

03 February 2016 Service recipient is a company which is dealer in cars. He's offering extended warranty to customers at Rs 4999. He outsourced the service to a Warranty dealer who charged 3960 including full service tax. Now the service receiver is paying tax on Margin of Ext Warranty i.e, on 1040. So can it claim input tax? My doubt is output was not calculated on 4999 but on 1040.

Suresh Ramaswamy

Suresh Ramaswamy (Expert)
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03 February 2016 This is a very interesting query. If I understand it right, the extended warranty inclusive of service tax is Rs.4999/- The service is provided by the Car dealership company. If the extended warranty basic value is Rs.4999/- the Service Tax and SBC would amount to Rs.700 & Rs.25 respectively and the total bill should be for Rs.5724 and not Rs.4999. Since this aspect is not clear from your query, I assume that the total bill issued is for Rs.5724. Similarly if the outsourced party charged Service Tax in addition to the amount of Rs.3960. For each extended warranty total duty of Rs.725/- has to be paid. There will be no credit for SBC paid to the supplier, but the Service Tax component can be set off such that a sum of Rs.700 excluding SBC is deposited to the Treasury either by the car dealer or by the car dealer and warranty trader jointly. In case the total ST component is less than Rs.700/-, the car dealer should not set off the Sevice Tax paid as CENVAT credit.