Liability paid by any other person

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This query is : Resolved

Monika Sharma (Querist)

19 May 2012 my client is a car dealer. the service tax liability of my client is paid by the car company as there is an agreement between the car dealer and the company that the service tax liability is to be borne by the company.
is this valid in law?
plz give if there is any judgement supporting this.

chaitanya cherukuri

chaitanya cherukuri (Expert)

19 May 2012 Service tax liability paid by the your company is valid in law. total amount paid to dealer has to be treated as service charges and company has to pay service tax additionaly to dealer.since this is an indirect tax there is no problem in doing this.

indirect taxes, tax has to be borne by the service receiver. this is valid contract and also nothing different from normal contracts

Monika Sharma

Monika Sharma (Querist)

19 May 2012 i think you wrongly understood my query.
the problem is like my client is "A" an authorised car dealer of maruti. service tax liability of "A" is paid by maruti. now whether this payment is valid or "A" is liable to discharge its service tax liability.

Arun Gulati

Arun Gulati (Expert)

19 May 2012 Under Finance Act, 1994 there is no provision to transfer service tax liability from service provider to service receiver except for few services prescribed under Rule 2(d)of Service Tax Rules, 1994 read with section 68 of the Act. Therefore, here you are liable to pay service tax liability not marauti. will try to get back to you with some judgment. if there is any enquiry is going on, not pay service tax.

chaitanya cherukuri

chaitanya cherukuri (Expert)

21 May 2012 Dealer has to pay service tax liability out of the money received from Maruti Suzuki. or Maruti Suzuki directly can pay service tax amount in your service tax registration. generally many multinational companies would follow this practice to avoid any problem while taking credit for the service tax liability. if Maruti suzuki claims that it would pay as a service receiver(i.e.in their name and filing return mentioning the services received) then it is wrong.

Another point of view is that, maruthi may be correct if dealer is treated as an agent (i.e. Principal and Agent relationship). in this case maruthi may pay service tax treating it self as an principal.

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