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Service tax on price variation

Vijay Ramani (M.Com) (31 Points)

17 February 2015

Hello Experts,

Our firm is engaged in providing Transportation services. My question is whether Service Tax will be applicable on Diesel Price variation ?

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3 Replies

Vikas (CA) (1135 Points)
Replied 17 February 2015

The question is unclear. Are you charging Diesel in your invoices from the customers, etc.? If not, the question of Service tax does not arise.

Further, diesel is not subject to Service tax, but transportation services is. Furthermore, transportation services are also subject to reverse charge mechanism.

Thus, I would suggest to consult a practicing CA for the same.

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Vijay Ramani (M.Com) (31 Points)
Replied 18 February 2015

Vikasji,

We have entered an agreement of hiring vehicle with our customer. The terms of the contract is that they will pay Rs 75,000/- per month hiring charges, the cost of manpower, diesel, toll tax rest with us. Since Diesel prices now a days are more volatile therefore a clause of Price Variation clause inserted in the contract. Further it states that every increase / decrease in diesel price by Rs 2/- the rate Per MT (Metric Ton) / Km will be increased / decreased by Rs 0.50/- and separate invoice should should be submitted seperately in every quarter.

The above service comes usnder Supply of Tangible Goods Services @ 12.36%.

Now my question is what will be the effect of Service Tax on the above Price Variation Invoice ?

Vikas (CA) (1135 Points)
Replied 18 February 2015

Hi,

In view of Section 67(3) of the Finance Act, 1994, i.e., the Service Tax Act, it may be noted that any amount charged even after the provision of service for a taxable service should be included for taxation. Please refer to the following extracts –

“The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.”

Further, you must also note that there is Point of Taxation Rules, 2011 (POTR), wherein the general rule for payment of Service tax is the invoice raised or amount whichever is earlier, triggers the Service tax liability for the month.

However, there are a few exceptions to this rule. Such as, if the invoice is not raised within 30 days from the completion of service, then the month in which the service was completed or the amount received, whichever is earlier, should trigger the Service tax liability.

Thus, please keep all these issues in mind, while going any further.