Service tax vs vat

Dear P Vasudeva Rao

Let us breakdown the transactions thus: 1. Company purchases handsets, 2. The software is loaded by the Company in the handsets, 3. The handsets ar e sold o users to use. 4. The company provides the necessary infrastructure for database warehousing based on the use of the handsets.

In the above scenario, the VAT will be applicable on the purchase of handsets. This vat can be set off against the Company's liability to pay VAT for a particular Tax period. However if the purchase of handsets are made from dealers in other states, the VAT Input Credit is inadmissible. You have not mentioned whether the handsets are procured intra-State or inter-State.

Now coming to the sale of handsets after loading software. You have not mentioned whether it is a customized software or is a common software loaded into the handsets. If it is a customised software then only Service Tax at the applicable rates shall have to be charged.

You have also to take into consideration that fact that can the Value of the Handset and software be separately distinguished and is mentioned in the Sale order or Work Order from the users. If the value of material and value of service can be distiguished then VAT on material content and Service Tax on the service component can be charged in the bills.

Now coming to the Data Warehousing services, Service Tax at the applicable rate is to be charged.