18 December 2008
A newly incorporated firm is engaged in Advertising Agency Business (i.e. making and preparation). It designs and prints flex hoardings for its clients. It has an annual turnover of around 12 Lakhs.
The purchase bills for raw materials are of 4% and 12.5% VAT items (obviously, the firm had to pay vat on purchase) eg, it paid 4% VAT on purchase of Flex, 12.5% on purchase of clips etc. My questions are:
1. Does the firm, being an advertising agency, need to file VAT Return or Service Tax Return.
2. If the firm needs to file service tax return and charge service tax to its clients, then on what value should the tax be calculated. (Whether the cost of raw materials consumed should be considered for computing service tax or should be excluded...as the cost of all the raw materials cannot be bifurcated precisely e.g. ink used in printing)
3. Can the firm enjoy the VAT input on purchases. If yes, how?
4. What will be the best way to record purchases and sales in the books of accounts (plz give specimen entry)
5. The firm has already got VAT Registration. In case VAT is not applicable, what should be done in present circumstances.
18 December 2008
You have stated about input VAT but not output. I don't think there is sale involved in this case. But it is not my area. With regard to service tax, in my opinion the service is taxable. But VAT and ST are mutually exclusive.
26 December 2008
As per my view , your firm is liable to pay VAT and service tax. Depending upon the terms with the client either there may be indivisble contract or divisible contract. basically u r designing and also prints flex hoardings for its clients. There is a transfer of material and labour. Under service tax law based on Notification 12/2003, u can avail the deductions for materials consumed and under the VAT law, it depends upon in which state u are executing the works contract
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