09 September 2011
WE are machinery manufacturers. We are billing machinery and paying VAT/CST on machinery billing. We are also doing the service under 'Erection,Supervision/Installation, Maintenance or repair services' of the above machinery. For this service we are registered under 'Central Excise Department (Service Tax) under Service provider of 'C&I, Maintence or Repair service'.
We are billing separately and collecting tax and paying to service tax dept.
Can VAT is chargeable on 'Erection Supervision, Maintenance,repair service' apart from 'Service Tax'
We are under 'Andhra Pradesh Value Added Tax'
The AP commercial taxes are proposing the tax on 'Erection Supervision, Maint.Repair Service.
Can any body advise/help me is this correct. Can we pay the VAT on Service Bills. with related case laws
09 September 2011
Mr Author, VAT is not applicable on pure labour cahrges,such as Erection and supervision,but in maitenance and repair,if there is any supply of spares and parts, then the value of such spares replacement would attract VAT.The part of receipts which becomes liable for VAT will not be chargeable with Service Tax. This principle is common in all VAT laws in India. MJK
10 September 2011
Supreme Court judgment in the case of M/s. Kone Elevators (India) Ltd. [ 140 - STC - 22]. The Hon. Supreme Court has delivered a judgment in the case of M/s. Kone Elevators (India) Ltd, on 17th February, 2005. The judgment is reported in 140 STC 22. The issue before the Apex Court was whether the contract for manufacture, supply, installation and commissioning of lift is a sale or works contract. The Court, relying upon the terms and conditions of the contract, has held that the said contract amounts to sale and not a works contract. The Court has arrived at such conclusions, relying upon its earlier judgment in the case of M/s. Hindustan Shipyard Limited vs. State of Andhra Pradesh [ 119 STC 533 (SC)]. The Court in that case has laid down certain principles to determine whether a particular contract is a contract of sale or a works contract. In the judgment, it is held that "if the thing to be delivered has any individual existence before the delivery as the sole property of the party who is to deliver it, then it is a sale. If the bulk of material used in construction belongs to the manufacturer who sells the end-product for a price, then it is a strong pointer to the conclusion that the contract is in substance one for the sale of goods and not one for labour. However, the test is not decisive. It is not the bulk of the material alone but the relative importance of the material qua the work, skill and labour of the payee which also has to be seen. If the major component of the end-product is the material consumed in producing the chattel to be delivered and skill and labour are employed for converting the main components into the end-products, the skill and labour are only incidentally used, the delivery of the end-product by the seller to the buyer would constitute a sale. On the other hand, if the main object of the contract is to avail the skill and labour of the seller though some material or components may be incidentally used during the process of the end-product being brought into existence by the investment of skill and labour of the supplier, the transaction would be a contract for work and labour." The Court then perused the agreement and has noted that the contract in question consisted of certain obligations on the part of the customer. Under this clause, the customer was obliged to undertake the work of civil construction, properly enclosed lift hoistway, a lift pit of proper depth, properly lighted machine room, private pockets on the lift walls, certain other obligations were also passed on to the customer. The Court observed that, the dealer is only required to supply and install the lift and hence, on the basis of the facts of the case and the principles laid down in the case of M/s. Hindustan Shipyard Limited case, it was held as a contract of sale and not a works contract.
02.The judgment of the Supreme Court is contrary to the practice followed in Maharashtra. Our own High Court, in the case of M/s. Otis Elevators, (24 STC 524), had earlier held that the contracts for the manufacture, supply, installation and commissioning of lift is a works contract. The Mumbai High Court judgment is being followed in the State, treating such type of contracts as works contracts.
03.However, in view of the above quoted Supreme Court judgment, the contracts involving lifts which were earlier treated as works contracts are likely to be re-opened. In order to avoid any hardships that may be caused to any dealer due to re-opening of the assessment, it is now decided that :-
a)For all the periods ending upto 31st March, 2006 the activity of manufacture, supply, installation and commissioning of elevators shall be treated as a works contract.
b)No cases pertaining to the periods as above shall be re-opened only on the basis of the Supreme Court judgment in the case of M/s Kone Elevators (India) Ltd.
c) For the periods from 1st April, 2006 onwards all cases wherein facts are similar to the facts in the case before the Supreme Court, the transactions will be treated as "sale". However, if the facts are materially different, i.e., if the thing to be delivered does not have any individual existence before the delivery and also the manufacturer is required to carry substantial obligations for installation and commissioning such as civil construction work etc., which are more than mere incidental works, then such contract will continue to be treated as a works contract.
This circular is being issued with the prior approval from the Government.
04.This Circular is clarificatory in nature. If any person has any doubt, he may refer the matter to this office for further clarification.
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