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Taxation on annual maintenance contact

Others 8057 views 2 replies
Dear All,
 
Please let me know the VAT & Service Tax rates on Annual Maintenance Contact for IT Products.
 
As for as my knowledge 75% of the Contact value will taxable at 5.5% VAT and 25% of the Contact value will taxable at 12.36% Service Tax.
 

Look forward for your reply

Replies (2)

For comprehensive AMC, service tax on 70% - Vat as per provisions of State Vat law (need nt be 30% can be even 60 or 70 or 8-% if STate Vat law so provides - as this is a compositipn scheme)

Annual maintenence contracts (AMC's) are composite contracts bundled to have service and sales components. It can be classified as works contract for the purpose of taxability. Rule 2A of the Service tax rules are clear which says that in case of a works contract, service tax is applicable on the service portions of the works contract.

But in the current senario, segregating the contract into two, a) service portion and b) sales portion is difficult. If the AMC covers replacement of certain parts on a periodic basis, then such portions of the sales are liable for VAT. Eg. AMC with the aquaguard dealer involves replacement of the filtter every 3/6 months. If the approtionment can be made in the case above, then service component is the balance of the value attributable to service.

If the segragation of the same is not possible, a practical sotution is here. Make approximations based on the past trends of the value of service components and sale of materials. And as at the year end, please reconcile the same with actuals to determine the difference. File a revised return to incorporate the difference.   

It is notes in Imagic Creative Pvt. Ltd. V. Commissioner of Commercial Taxes & Ors. 2008 (12) VST 371 (SC), though the Supreme Court cryptically observed that VAT and Service Tax are mutually exclusive, no reasons were given to support this Claim.

 


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