Vat in case of amc
This query is : Resolved
11 August 2011
sir, i have given a annual maintenance of escaltors (lifts) to a well known company. The amount has to paid in advance. In annual maintenance contract the contractor will carry out repair and also change the parts. But the contractor will not charge anything more than that.
they have raised the bill as follows
AMC contract charges 2000000
service tax @ 10.30% 206000
Punjab Vat @ 13.75% 275000
Total Amount Charged 2481000
It leads to double taxation. Plz suggest me with any circular. It will greatly helps me.
Thanx in advance
they have raised the bill as follows
AMC contract charges 2000000
service tax @ 10.30% 206000
Punjab Vat @ 13.75% 275000
Total Amount Charged 2481000
It leads to double taxation. Plz suggest me with any circular. It will greatly helps me.
Thanx in advance
12 August 2011
it appears the company is charging under works contract act without abatement.
12 August 2011
Sir,
Can u tell what is the rate mentioned in Escalators
Can u tell what is the rate mentioned in Escalators
13 August 2011
AMC is to be treated other than works contract. It may happen that you might be required to incur expenses and might not too. So you have to pay ST and VAT both
13 August 2011
Sir why both taxes are imposed on same amount. there must be some bifercation
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02 August 2025
This is a classic issue where both **Service Tax** (now subsumed under GST but was separate earlier) and **VAT** are being charged on the same AMC (Annual Maintenance Contract) amount, leading to what feels like double taxation.
### Here’s a detailed explanation and how this usually works:
---
### 1. **Nature of AMC (Annual Maintenance Contract) for Escalators**
* AMC generally covers:
* Regular servicing and maintenance (considered a **service**).
* Replacement of parts (considered a **sale of goods**).
* Because AMC includes **both service and supply of goods (parts)**, tax authorities treat it as a **works contract**.
---
### 2. **Why Both VAT and Service Tax Are Charged?**
* **Service Tax** applies on the **service component** (labor, maintenance, repairs).
* **VAT** applies on the **goods component** (replacement parts).
If the contractor does not provide a bifurcation (break-up) of the value of services and goods, the tax department may apply both taxes on the entire AMC amount (full value), causing double taxation.
---
### 3. **Works Contract Taxation Rules**
* Under the **Works Contract Act**, an abatement is allowed where tax is charged only on the **service portion** or the **value of goods**.
* If **no bifurcation** is provided, tax departments may tax the **full amount** under both taxes.
---
### 4. **Possible Solutions**
* **Request bifurcation from the contractor:**
* The contractor should split the invoice amount between service charges and value of parts.
* Then VAT will be charged only on parts, and Service Tax only on service charges.
* **Apply for abatement if applicable:**
* For works contracts, some states allow a percentage abatement on the total amount so that tax is charged only on the service part or on a reduced base.
* **Refer to circulars or rulings:**
* Most states have issued circulars clarifying that VAT and Service Tax cannot be charged on the same full amount without bifurcation.
* For example, the **Central Board of Excise & Customs (CBEC)** and various state VAT departments have clarified on this.
---
### 5. **Relevant Circulars**
* **CBEC Circular on works contract tax and service tax** (2009) clarifies abatement and segregation.
* Many states have VAT circulars explaining that VAT is only on parts and not on service charges.
---
### 6. **Summary**
| Tax Component | Applicable On |
| ------------- | ---------------------------------- |
| VAT | Value of parts replaced |
| Service Tax | Service component (labor, repairs) |
If the invoice doesn’t clearly show this split, double taxation occurs, which is not correct.
---
### **What You Should Do:**
* Ask the contractor for a detailed bifurcation of AMC charges into service and parts.
* Verify if the contractor has applied abatement for service tax.
* If not, request them to issue a revised invoice.
* You can also consult your state's VAT and Service Tax department circulars for specific rulings.
---
If you want, I can help you draft a letter/email to your contractor requesting this bifurcation and mentioning the tax implications. Would you like that?
### Here’s a detailed explanation and how this usually works:
---
### 1. **Nature of AMC (Annual Maintenance Contract) for Escalators**
* AMC generally covers:
* Regular servicing and maintenance (considered a **service**).
* Replacement of parts (considered a **sale of goods**).
* Because AMC includes **both service and supply of goods (parts)**, tax authorities treat it as a **works contract**.
---
### 2. **Why Both VAT and Service Tax Are Charged?**
* **Service Tax** applies on the **service component** (labor, maintenance, repairs).
* **VAT** applies on the **goods component** (replacement parts).
If the contractor does not provide a bifurcation (break-up) of the value of services and goods, the tax department may apply both taxes on the entire AMC amount (full value), causing double taxation.
---
### 3. **Works Contract Taxation Rules**
* Under the **Works Contract Act**, an abatement is allowed where tax is charged only on the **service portion** or the **value of goods**.
* If **no bifurcation** is provided, tax departments may tax the **full amount** under both taxes.
---
### 4. **Possible Solutions**
* **Request bifurcation from the contractor:**
* The contractor should split the invoice amount between service charges and value of parts.
* Then VAT will be charged only on parts, and Service Tax only on service charges.
* **Apply for abatement if applicable:**
* For works contracts, some states allow a percentage abatement on the total amount so that tax is charged only on the service part or on a reduced base.
* **Refer to circulars or rulings:**
* Most states have issued circulars clarifying that VAT and Service Tax cannot be charged on the same full amount without bifurcation.
* For example, the **Central Board of Excise & Customs (CBEC)** and various state VAT departments have clarified on this.
---
### 5. **Relevant Circulars**
* **CBEC Circular on works contract tax and service tax** (2009) clarifies abatement and segregation.
* Many states have VAT circulars explaining that VAT is only on parts and not on service charges.
---
### 6. **Summary**
| Tax Component | Applicable On |
| ------------- | ---------------------------------- |
| VAT | Value of parts replaced |
| Service Tax | Service component (labor, repairs) |
If the invoice doesn’t clearly show this split, double taxation occurs, which is not correct.
---
### **What You Should Do:**
* Ask the contractor for a detailed bifurcation of AMC charges into service and parts.
* Verify if the contractor has applied abatement for service tax.
* If not, request them to issue a revised invoice.
* You can also consult your state's VAT and Service Tax department circulars for specific rulings.
---
If you want, I can help you draft a letter/email to your contractor requesting this bifurcation and mentioning the tax implications. Would you like that?
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