Chartered Accountant
28 Points
Joined May 2013
Annual maintenence contracts (AMC's) are composite contracts bundled to have service and sales components. It can be classified as works contract for the purpose of taxability. Rule 2A of the Service tax rules are clear which says that in case of a works contract, service tax is applicable on the service portions of the works contract.
But in the current senario, segregating the contract into two, a) service portion and b) sales portion is difficult. If the AMC covers replacement of certain parts on a periodic basis, then such portions of the sales are liable for VAT. Eg. AMC with the aquaguard dealer involves replacement of the filtter every 3/6 months. If the approtionment can be made in the case above, then service component is the balance of the value attributable to service.
If the segragation of the same is not possible, a practical sotution is here. Make approximations based on the past trends of the value of service components and sale of materials. And as at the year end, please reconcile the same with actuals to determine the difference. File a revised return to incorporate the difference.
It is notes in Imagic Creative Pvt. Ltd. V. Commissioner of Commercial Taxes & Ors. 2008 (12) VST 371 (SC), though the Supreme Court cryptically observed that VAT and Service Tax are mutually exclusive, no reasons were given to support this Claim.