02 August 2025
Hey! Great question about VAT and service tax/excise duty.
### VAT on inclusive of Service Tax / Excise Duty — What’s the rule?
Generally, VAT is charged on the **value of goods**, which is the **sale price** of the goods. The question is whether the VAT should be charged on the price **including** service tax or excise duty.
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### Key points:
1. **VAT on goods only**: VAT applies to the sale of goods. Service tax applies to services. Excise duty is a central tax on manufacture of goods.
2. **Value for VAT calculation**: The VAT value is typically the **transaction value** or **sale price** of the goods **excluding** any service tax on services.
3. **Service Tax and VAT are different taxes**:
* Service tax is on services and charged separately. * VAT is on goods.
4. **Excise duty and VAT**: Excise duty is usually included in the price of the goods, so VAT is charged on the **gross price including excise duty** (because excise duty is part of the cost of goods).
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### What about charging VAT on **service tax included value?**
* If service tax is **charged separately** for a **service**, then VAT should **not** be charged on the service tax amount. * If the invoice shows a **combined amount including service tax for services**, VAT should be on the value of goods **only**. * If your invoice is **inclusive of service tax for services and VAT for goods**, you need to bifurcate the amounts.
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### Relevant legal provisions (India context):
* **Section 4(2) of the Gujarat VAT Act** and corresponding sections in other states specify VAT is charged on **taxable turnover**, which is the sale price of goods. * Service tax is governed under the Finance Act, and is separate from VAT laws. * Excise duty is included in VAT value because it’s part of the goods price.
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### Summary:
| Tax Component | VAT Charged on This? | | ------------- | ---------------------------------- | | Excise Duty | Yes, included in VAT value | | Service Tax | No, VAT not charged on service tax |
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If you want, I can help you draft an invoice format showing how to bifurcate service tax and VAT amounts clearly.
Does that help? Would you like a sample calculation?
CAclubindia
