Service Tax and VAT Being attracted on Gross Sale Value
This query is : Resolved
05 December 2010
Dear Experts,
A Company had done a Erection, Painting and Sheeting Work. It had paid Service Tax as well as VAT on the Gross Value (without any break up of Supply of Goods & Supply of Services). What can be the Various Implications of such Payment?
A Company had done a Erection, Painting and Sheeting Work. It had paid Service Tax as well as VAT on the Gross Value (without any break up of Supply of Goods & Supply of Services). What can be the Various Implications of such Payment?
06 December 2010
Dear Mr.Surya
would you please elaborate your question a little bit and also mention the name of state in which VAT is applicable for the company
would you please elaborate your question a little bit and also mention the name of state in which VAT is applicable for the company
06 December 2010
The VAT applicable is Andhra Pradesh VAT. It had opted composition scheme but it had paid Service Tax as well as VAT on the Entire Sale Value. Example:- Painting Work. The Value of Work done say it Rs 100/-. It had paid 10.3 percent service Tax as well as 4 percent VAT on entire 100 without any Break up.
24 July 2025
Got it! Here’s a detailed explanation of the situation where a company has paid Service Tax and VAT both on the gross sale value (without breakup between goods and services), specifically for erection, painting, and sheeting work in Andhra Pradesh, where VAT composition scheme is opted:
Issue Summary
The company performed erection, painting, and sheeting work.
The company paid Service Tax @ 10.3% on the entire invoice value (e.g., Rs. 100).
Simultaneously, it paid VAT @ 4% on the entire value without breaking up the value of goods and services.
Company is in Andhra Pradesh and has opted for the Composition Scheme under VAT.
1. Understanding the Tax Applicability
Service Tax
Service tax is applicable on taxable services provided.
Erection, painting, and similar works typically fall under taxable service categories (e.g., “Erection, Commissioning, Installation, Repair or Maintenance Service”).
Hence, service tax on the service portion of the value is applicable.
VAT
VAT applies on sale of goods, not on services.
If the transaction involves transfer of goods (like materials, paints, sheets), VAT is applicable on the goods portion of the value.
VAT on services is not applicable under the VAT law (services are taxed under Service Tax).
Composition Scheme under VAT
Composition Scheme generally applies to small dealers, allowing tax at a fixed percentage on turnover instead of detailed input credit and tax calculation.
The company may be paying VAT @ 4% as per composition scheme on sales of goods.
2. What Went Wrong?
The company paid service tax on the entire invoice value (Rs. 100), which is incorrect because the goods portion should be excluded.
Simultaneously, it paid VAT on the entire invoice value (Rs. 100), which is incorrect because VAT applies only on the goods portion.
This means both taxes were paid on the same value, resulting in double taxation on the goods portion.
3. Correct Approach
The invoice should have been split into two parts:
Component Value (Rs.) Tax Applicable
Value of Goods X VAT @ 4% (Composition scheme)
Value of Services 100 - X Service Tax @ 10.3%
Service tax should be charged only on the service portion.
VAT should be charged only on the goods portion.
This avoids double taxation on goods.
4. Implications of Paying VAT and Service Tax on Entire Value
Double Taxation: Paying VAT and service tax on the full invoice value inflates tax liability.
No Input Credit on VAT: Under composition scheme, input credit of VAT is not allowed, so paying VAT on service portion is loss.
Recovery and Rectification: The company should rectify by re-issuing invoices or adjusting future bills to clearly bifurcate goods and service values.
Possibility of Refund/Adjustment: The company may try to claim refund or adjustment for excess tax paid, but this depends on local VAT department’s policies.
5. Recommendations
Always bifurcate invoice value between goods and services clearly.
Apply VAT only on goods value.
Apply service tax only on service value.
Consult a tax professional to explore refund or adjustment possibilities for excess tax paid.
Keep proper documentation of invoices and tax payments.
Issue Summary
The company performed erection, painting, and sheeting work.
The company paid Service Tax @ 10.3% on the entire invoice value (e.g., Rs. 100).
Simultaneously, it paid VAT @ 4% on the entire value without breaking up the value of goods and services.
Company is in Andhra Pradesh and has opted for the Composition Scheme under VAT.
1. Understanding the Tax Applicability
Service Tax
Service tax is applicable on taxable services provided.
Erection, painting, and similar works typically fall under taxable service categories (e.g., “Erection, Commissioning, Installation, Repair or Maintenance Service”).
Hence, service tax on the service portion of the value is applicable.
VAT
VAT applies on sale of goods, not on services.
If the transaction involves transfer of goods (like materials, paints, sheets), VAT is applicable on the goods portion of the value.
VAT on services is not applicable under the VAT law (services are taxed under Service Tax).
Composition Scheme under VAT
Composition Scheme generally applies to small dealers, allowing tax at a fixed percentage on turnover instead of detailed input credit and tax calculation.
The company may be paying VAT @ 4% as per composition scheme on sales of goods.
2. What Went Wrong?
The company paid service tax on the entire invoice value (Rs. 100), which is incorrect because the goods portion should be excluded.
Simultaneously, it paid VAT on the entire invoice value (Rs. 100), which is incorrect because VAT applies only on the goods portion.
This means both taxes were paid on the same value, resulting in double taxation on the goods portion.
3. Correct Approach
The invoice should have been split into two parts:
Component Value (Rs.) Tax Applicable
Value of Goods X VAT @ 4% (Composition scheme)
Value of Services 100 - X Service Tax @ 10.3%
Service tax should be charged only on the service portion.
VAT should be charged only on the goods portion.
This avoids double taxation on goods.
4. Implications of Paying VAT and Service Tax on Entire Value
Double Taxation: Paying VAT and service tax on the full invoice value inflates tax liability.
No Input Credit on VAT: Under composition scheme, input credit of VAT is not allowed, so paying VAT on service portion is loss.
Recovery and Rectification: The company should rectify by re-issuing invoices or adjusting future bills to clearly bifurcate goods and service values.
Possibility of Refund/Adjustment: The company may try to claim refund or adjustment for excess tax paid, but this depends on local VAT department’s policies.
5. Recommendations
Always bifurcate invoice value between goods and services clearly.
Apply VAT only on goods value.
Apply service tax only on service value.
Consult a tax professional to explore refund or adjustment possibilities for excess tax paid.
Keep proper documentation of invoices and tax payments.
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