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Works contract on supply of refurbished printer toners

Saurav Ray (Executive (Accounts)) (32 Points)

06 January 2016

Hello experts,

We (a body corporate) buy refurbished toners and cartridges for office printers from a small proprietorship firm, whose annual turnover is approximately Rs. 8 Lacs. Hence, the firm has not taken registration under Service Tax.

Does the supply of same attract Works Contract under Reverse Charge Mechanism of Service Tax?

Please elaborate.

Thanks in advance.

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9 Replies

Ajay Chandramouli (Article Assistant ) (334 Points)
Replied 06 January 2016

Dear Saurav Ray

Reverse charge attracts only if Works contract service is provided by a person (other than Body corporate) to a Body corporate and hence service tax needs to be discharged by body coporate.

Further the turnover of the service provider (here firm) is not relevant to discharge the obiligation of service receiver. Hence if it is a workscontract service tax needs to be comupulsory discharged by service receiver to the extent of 50%

But as per yor query it seems you only buy the toners i.e only pure purchase. Pure purchase transactions does not cover under the ambit of works contract definetion.

So carefully ascertain the transaction and act

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Saurav Ray (Executive (Accounts)) (32 Points)
Replied 06 January 2016

Thanks Mr. Chandramouli. Let me provide some more detail: We get 2 types of invoices: 1. Supply of refurbished toners, where WB VAT is charged 2. Refilling and modification charges of toners, which is clearly labour charges for replacement of inner drum and refilling the same with ink. On such invoices, we normally deduct TDS U/s 194C. Hence my query, does the same attract ST Liability on us (Service Receiver) under Reverse Charge Mechanism, the head being "Works Contract Service"?

Saurav Ray (Executive (Accounts)) (32 Points)
Replied 06 January 2016

Ajay Chandramouli (Article Assistant ) (334 Points)
Replied 06 January 2016

Generally as the both material and service is from same vendor, seeing the colorable device it is clear that you have obtained works contract service from the vendor so it is a reverse charge transaction. This will be also the view of department.

But the other way of intreperting the transaction as not works contarct is also possible which always carry an non ascertainable risk

Saurav Ray (Executive (Accounts)) (32 Points)
Replied 06 January 2016

What should be done then?

Is it safe to pay Service Tax to Govt on such transactions or simply ignore it?

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Ajay Chandramouli (Article Assistant ) (334 Points)
Replied 06 January 2016

That depends on the volume of transactions

Ashok J (CA Final) (880 Points)
Replied 07 January 2016

You can ask them to bill total amt as sale value of toner instead of labour charge....in that case u wil suffer vat which u cn claim as input credit.....but my doubt is in case of rev chg mechanism shud the company pay tax on every transaction irrespective of supplier claimimg ssp exemption