Request for one clarification on service tax & vat

199 views 4 replies

Vishnu Sharma

CMA

30 Points Joined September 2012

In a Single Tax Invoice the Taxable Value is exceeding the Actual Cost of the Item (Under Works Contract - Composition) as below. Charging Vat on 70% of Cost of Item Charging Service Tax on 40% of Cost of Same Item Thus Overall Taxable Value becomes 110%. Whether it should not be restricted to 100% overall ? Whether the overlapping in Taxable Value is permissible under the Law ? Whether the Assesse is liable to pay Vat as well as Service Tax on the same part of Product/Service at the same time ? If Yes, how do we support this ? With any Rule OR Case Law ? Answer should be suggested in a Very Clear Way and Point wise please.

Replies (4)

Hitesh Khanna

Accounting & Finance Taxation Company

839 Points Joined September 2010

I beleive that you have read the whole section in a hurry thats what appears from your query.
Service Tax is charged on the service portion and VAT is charged on the Goods portion.
Moreover the Taxable Value will never exceed the value of the goods. VAT and Servicetax cant be leived together on the same portion.
I woukd suggest you to refer examples from your text books so that you can clear your doubts

Vishnu Sharma

CMA

30 Points Joined September 2012

Thanks for your response.. Please see the attached Tax Invoice.. to have more clarity on the query.

A) Charging Vat on 70% of Cost of Item.

B) Charging Service Tax on 40% of Cost of Same Item

C) Thus Overall Taxable Value becomes 110%.

I think either Vat should be charged on 60% OR Service Tax will be charged on 30%, so that overall will be 100% only. Please correct me, if wrong.

Vishnu Sharma

CMA

30 Points Joined September 2012

Hi Hitesh,

Do you need any other supporting document to clarify the doubt.

CA PRAMOD SARAOGI

Chartered Accountant

1113 Points Joined December 2007

The answer to the question lies in two parts :

Rule 2A(i) and Explanation (c) to Rule 2A(i)

Rule 2A(i) reads AS UNDER :

Value of service portion in the execution of a works contract shall be equivalent to the gross amount charged for the works contract less the value of property in goods transferred in the execution of the said works contract

Expl (c) to Rule 2A(i)

Where value added tax or sales tax has been paid or payable on the actual value of property in goods transferred in the execution of the works contract, then, such value adopted for the purposes of payment of value added tax or sales tax, shall be taken as the value of property in goods transferred in the execution of the said works contract for determination of the value of service portion in the execution of works contract under this clause.

In your case the VAT is not paid on the actual value of the property in goods transferred in the execution of works contract. Rather the value of 70% taken by you is presumptive under the composition Scheme as stated by you. In any composition Scheme the value referred to is not the actual one but based on the presumption that the value of the goods involved in execution of WC is deemed to be 70%. Therefore , 110% calculated by you is not based on the actual method of valuation.