22 August 2014 Sir,

Pls tell me according to which section we charge VAT on inclusive of service tax/excise duty amount.
I asked this question many times but no one answer.

Thanks

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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27 July 2025 You're welcome! Let's break this down into two parts to give you a clear and concise answer.

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### ✅ **Part 1: TDS on Job Work (Section 194C)**

Under **Section 194C of the Income Tax Act, 1961**:

* TDS **is required** to be deducted **on all job work payments** made to contractors (including subcontractors), whether exempted from indirect taxes (like VAT/Service Tax) or not.
* **TDS Rates**:

* **1%**: If payment is to an **individual or HUF**
* **2%**: If payment is to **others (Firm, Company, etc.)**
* **20%**: If **PAN is not provided** by the contractor (Section 206AA applies)

✅ So yes — **all job work** is liable for TDS **under section 194C**, including exempted ones (e.g. those not liable under GST or service tax), **as long as it meets the threshold limit**:

* **₹30,000 per contract** or
* **₹1,00,000 aggregate in a year**

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### ✅ **Part 2: VAT on Inclusive of Service Tax / Excise Duty**

This is a VAT (sales tax) vs. service tax valuation issue. Before GST (pre-July 2017), this was relevant:

#### ✴️ Question:

> Should VAT be charged on the **value including service tax/excise duty**?

#### ✴️ Answer:

* **No**, VAT should be **charged only on the value of goods**, not on the value that includes **service tax or excise** (which are taxes on services/manufacturing).
* There are various **judgments** where courts have held that **VAT and service tax operate on different components**.
* **Excise duty**, however, was part of the assessable value for VAT under some state VAT laws (because it formed part of the sale price).

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### 📝 Judicial Reference (Pre-GST):

* **Bharat Sanchar Nigam Ltd. vs. Union of India (SC)**: Clarified distinction between sale and service, which helped define **composite and bundled contracts**.
* You had to split **goods and services** in a **composite job** contract and levy VAT only on the goods component.

If you're still dealing with pre-GST transitional assessments, VAT should be calculated **only on goods portion**, unless your state VAT law explicitly states otherwise.

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### 🔚 Conclusion

1. ✅ **TDS under Section 194C** is mandatory on all job work payments exceeding the threshold — even if it's tax-exempt job work.
2. ❌ **VAT should not be charged on service tax/excise-inclusive value**, unless specified by local VAT law. Service tax is not part of the sale value.

If you’re now under GST regime, both VAT and service tax are subsumed, and this is no longer applicable.

Let me know if you need a **sample job work contract with TDS and tax clauses**, or if this relates to a **GST-era query** instead.

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