Tax applicable- is vat or service tax??
This query is : Resolved
17 February 2016
Experts,
The case is:
A client provides AMC for electronic components. His service also covers replacement of parts , if and as required. He charges bill amount comprehensive of both these services.
My query is, if VAT should be charged (beacuse of replacement of Electronic components) or Only Service Tax (bcz of service provided), or is it proportionate>>???
PLEASE ALSO PROVIDE ANY CASE LAW / SUPPORTING / PROVISIONS .
Thanking you,
FARHEEN M.
The case is:
A client provides AMC for electronic components. His service also covers replacement of parts , if and as required. He charges bill amount comprehensive of both these services.
My query is, if VAT should be charged (beacuse of replacement of Electronic components) or Only Service Tax (bcz of service provided), or is it proportionate>>???
PLEASE ALSO PROVIDE ANY CASE LAW / SUPPORTING / PROVISIONS .
Thanking you,
FARHEEN M.
19 February 2016
Vat is applicable on goods and service tax is applicable on services as we all know
so in dis case if bifurcation is possible then vat shud be charged separately on replacement part only and service tax sud be charged on AMC charges
so in dis case if bifurcation is possible then vat shud be charged separately on replacement part only and service tax sud be charged on AMC charges
20 February 2016
The Service of AMC is covered under Repairs and Maintenance Services. If your client issues a single bill for both the particulars of material and the AMC Charges, then both the Commercial Tax and Service Tax Departments will treat the transaction as Works Contract Service. In a Works Contract, as per Rules under both the statutes, if the material cost and labour cost can be separately identified, then on the materials component VAT is levied, and on the labour component Service Tax is levied. In case that is not possible composite rates are applicable. Apparently in you client's case this bifurcation is possible.
No problems regarding VAT.
The classification becomes important under Service Tax. As stated above, AMC is covered under Repairs and Maintenance Services. In this case, the service provider is liable to collect the service tax from his customers and remit the same to the credit of Government. In case you treat the labour component only as the service, it is covered under Manpower Recruitment and Supply Services. This service is covered under Reverse Charge Mechanism and the liability can be wholly passed on to the service recipient. But if a single bill for both services and materials is issued, it will be treated as Works Contract Services by the Service Tax Department. In case of Works Contract on the labour component, 30% abatement is available. Of the balance 70%, 50% thereof i.e.35% is subject to Reverse Charge and payable by the service recipient. Your client has to collect service tax on 35% and remit the same to the credit of Government.
A caveat - once your client opts for Works Contract basis of Service, even the AMC bills of pure labour supply will be treated as Works Contract.
As to which is the best alternative to your client has to be finalized in consultation, with their auditors, VAT consultant and yourself.
No problems regarding VAT.
The classification becomes important under Service Tax. As stated above, AMC is covered under Repairs and Maintenance Services. In this case, the service provider is liable to collect the service tax from his customers and remit the same to the credit of Government. In case you treat the labour component only as the service, it is covered under Manpower Recruitment and Supply Services. This service is covered under Reverse Charge Mechanism and the liability can be wholly passed on to the service recipient. But if a single bill for both services and materials is issued, it will be treated as Works Contract Services by the Service Tax Department. In case of Works Contract on the labour component, 30% abatement is available. Of the balance 70%, 50% thereof i.e.35% is subject to Reverse Charge and payable by the service recipient. Your client has to collect service tax on 35% and remit the same to the credit of Government.
A caveat - once your client opts for Works Contract basis of Service, even the AMC bills of pure labour supply will be treated as Works Contract.
As to which is the best alternative to your client has to be finalized in consultation, with their auditors, VAT consultant and yourself.
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