15 December 2009
One of supplier is giving the service of refilling painting labeling of fire extinguishers & is charging VAT & Service tax as follows :
Total Bill Value 5250.00 12.50% VAT (on 75% of 5250) 492.19 4.12%Service Tax (100% of 5250) 216.30 ------------------------ Gross Bill Amt 5958.49 ======================== My query is if supplier is calculating VAT on 75% of 5250, that means 25% is the service involved & service tax should be calculated on 25% of 5250.00. Please clarify.
16 December 2009
This is a works contract. As per the local VAT norms, there is an abatement of 25% available towards labour component. Hence 12.5% VAT on the 75% is perfect. With regard to service tax, your supplier has opted for composition method of discharge under works contracts services. Here the gross value received is taxable @ 4.12% and CENVATable. Hence this is also perfect. If the contract value is quite significant, further tax planning is possible considering the full rate of 10.30% service tax and output VAT of 12.5%.
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