Tax applicable object labour with material

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Patel (Querist)
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15 November 2014 my uncle is doing business of airconditioner selling and repairing he is raising labour with material invoice in such case how much tax he has to charge ?

MJ Krishnamurthy

MJ Krishnamurthy (Expert)
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16 November 2014 In such a case VAT is to be charged on sale of components or spares and ST is to be charged on the service/labour charges....mjk

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Patel

Patel (Querist)
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22 November 2014 thank you sir,

he is charging 8% MVAT in labour+material invoices and nil service tax

he is saying it is not possible for him to segregate labour and material

kindly let me know what he is doing is correct ?

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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26 July 2025 Got it! Here’s a clear breakdown:

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### Scenario: Airconditioner repair — labour + material billed together

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### Tax applicability:

* **Material (spares/parts sold)** → **VAT (or now GST on goods)**
* **Labour/Service charges (repair service)** → **Service Tax (pre-GST) or GST on services**

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### What your uncle is doing:

* Charging **8% MVAT on the entire invoice amount** (labour + material)
* **Not charging any service tax**

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### Is this correct?

* **No**, strictly speaking this is **not correct** under the tax laws *before GST*.

* VAT should be charged **only on the material/spares part**.
* Service tax should be charged **only on the labour/repair service portion**.

* However, if he is **unable to segregate labour and material**, sometimes tax authorities allow taxing the **entire invoice under VAT**, but this is not strictly correct and may cause issues.

* Also, VAT on labour (service part) is not correct since labour is not goods.

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### What should be done ideally?

* Maintain proper breakup of **labour and material charges** on invoices.
* Charge:

* **VAT @ applicable rate (like 8% or state-specific) on material cost**
* **Service Tax (or GST on services) on labour charges**

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### Post GST scenario:

* Both goods and services are covered under GST.
* GST will apply on **total invoice** but rates may differ for goods and services.
* Generally, GST is charged on the full invoice with applicable rates.

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### Summary:

| Your uncle’s approach | Correct approach |
| ----------------------------------- | -------------------------------------- |
| 8% VAT on total (labour + material) | VAT on material, Service tax on labour |
| No segregation | Segregate labour and material charges |

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If segregation is difficult, better to consult a tax expert or check if your state tax department allows taxing the entire amount under VAT for simplicity—but it’s a bit risky.

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Want me to help draft an invoice format that properly segregates labour and material for compliance?

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