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Service tax against Coupans

Rajarajan (AO) (272 Points)

10 September 2009

We are both sales & service dealers for a Generator Company & after servicing the DG set during the warranty period, we send a coupon of the respective DG set, to the Manufaturer, against which we receive a credit note for the coupon amounting to Rs. 700 for each coupon

Now we are told by the excise departtment that we should pay Service tax for the coupon amount received by way of credit note.

Is it in order?

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6 Replies

ADITYA (Manager Finance) (742 Points)
Replied 10 September 2009

Dear Rajaram,

You are providing services of DG SET SERVICING to the various customers of a Generator Mfg Comapany. You are getting Rs 700/= from the manufacturer per such service, if DG set is within Warranty period, otherwise I presume that you are charging to the various customers for your said services.

Secondly, I presume that your Gross Receipts for such services is more than Rs 10 lacs per annum which also include receipts from Generator Mfg Company and you are charging service tax to your various customers.

If my presumptions are correct,

you have to pay service tax on the receipts from Generator Mfg Company also. However the receipt of such charges should be physical, mere Credit Note or Book entry does not attarct any Service Tax Liability.

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EKALABYA TALUKDAR (SERVICE TAX CONSULTANT) (666 Points)
Replied 11 September 2009

Originally posted by :Rajarajan
"	We are both sales & service dealers for a Generator Company & after servicing the DG set during the warranty period, we send a coupon of the respective DG set, to the Manufaturer, against which we receive a credit note for the coupon amounting to Rs. 700 for each coupon Now we are told by the excise departtment that we should pay Service tax for the coupon amount received by way of credit note. Is it in order?	"

Obviously you are in SERVICE TAX NET. If they only issue COUPON and finally dont pay money exchanging the coupon in that case you are not liable to pay SERVICE TAX.

Rajarajan (AO) (272 Points)
Replied 11 September 2009

Thanks Suren

Suren and Talukdar, your persumption is excactly correct, however DG manufacturing company is crediting the like amoiunt in their Statement of Accounts and at any point of time we never receive any physical payment of cash, rather it is adjusted against the spare purchases.

Moreover we make bulk spare purchase and stock it, and as when neccessary it is supplied to customers under warranty claim, we in turn claim spare cost with the manufacturer. The manufacturer in turn again credits us the like amount and subsequently adjusts with spares

And as I said there is no involvement of Cash anywhere instead there is only supply of spares to that extent by the manufacturer.

Under these circumstances I am still liable to pay Service Tax?

Rajarajan.

EKALABYA TALUKDAR (SERVICE TAX CONSULTANT) (666 Points)
Replied 12 September 2009

WHEN A MAN or PERSON ENGAGE HIS PERSONAL OR COLLECTIOVE EFFORT TO SERVE THE CLIENT. ONLY THEN THE SERVICE TAX OBLIGATION STARTS. WHAT EVER PURCHASE IS THERE COMES UNDER SALES TAX or VAT. YOU ARE LIABLE TO CHARGE SERVICE TAX FOR YOUR SERVICE CHARGE. TILL DATE 109 ITEMS ARE REGISTERED FOR SERVICE TAX PREVIEW, OTHER SERVICE IF ANY ARE NOT UNDER THE SERVICE TAX NET

Sunil (Trader) (2611 Points)
Replied 12 September 2009

Dear Rajarajan,

If you have crossed 10L limit and have to pay service tax, it is possible that you will have to pay service tax at the time your receipt of the money or money worth occurs. If the company has given you the voucher, you are still a creditor to the company and therefore the credit cannot be treated as a receipt. Service tax is on receipt basis.

MY VIEW (FAIR VIEW): If you have not taken any spares from company and the amount stands to your credit, no money has been received by you as company is still your debtor for the services rendered by you. Therefore service tax should not be payable at this stage. The moment you take the spares, you have received the money's worth and should pay service tax. On the contrary, if you have taken spares first and coupons are adjusted into value of spares taken, then you have to pay service tax on the adjustment of coupons. However, if the transactions are too regular this way, one fine day the Service Tax Dept. will consider all your spare parts purchased from manufacturer on 'credit basis' as an advance payment for your services and demand payment on receipt of advance basis.

Please consult your ST practitioner and run a test with law on the above basis. Everything is dependent on the way you present your books of account to avoid paying servcie tax at the stage you purchase your spare parts.