Tax share of service recipient

Nov 23 2012, 03:59 IST
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SummaryQueries on taxation and service tax liabilities, addressed by Vivek Sharma & Manav Saneja of Ernst & Young

Our company is engaged in the hospitality business and is in receipt of manpower crew for housekeeping services in New Delhi. Our annual total taxable turnover has never exceeded R7 lakh and accordingly, we do not hold a service tax registration. We understand that with the recent amendment in the service tax laws, with respect to manpower supply services, the service recipient is also liable to pay service tax under the reverse charge mechanism. Are we also covered under the recent amendment and liable to pay service tax? Also, whether, we as service recipients can avail of the SSI exemption of not paying service tax, taxable turnover being less than R10 lakh. Kindly advise.

It has been notified that with effect from July 1, service tax liability arising on account of supply of manpower services shall be borne partially by the service recipient under the reverse charge mechanism, provided that the services are rendered by an individual, HUF, partnership firm or an Association of Person. The share of service tax liability to be borne and paid is in the ratio of 75% by the service recipient and 25% by the service provider.

Accordingly, share of liability to be borne by your firm, being the service recipient, would be 75% of the total service tax liability. The service tax so paid would be available as credit to your firm.

The liability of the service provider and service recipient are different and independent of each other. Thus, in case the service provider is availing of exemption owing to turnover being less than R10 lakh, he shall not be obliged to pay any service tax. However, irrespective of the total taxable turnover of the service recipient, the service recipient needs to pay his share of service tax (i.e. 75% in case of manpower supply services) under the partial reverse charge mechanism.

MRP-based valuation

Our company is engaged in manufacture of adhesives and we sell the products in the retail market. We pay excise duty on MRP as the product is classified under the third schedule of the Central Excise Tariff Act, 1944. However, in recent times. We have started getting purchase orders from industrial buyers who buy in bulk. We have come to know that duty computation on MRP is not applicable in the case of industrial sale. Please advise.

Section 4 of Central Excise Act, 1944 (CEA) provides the basis for determining the assessable value for calculating excise duty. However, Section 4A of the CEA provides an exception to the general rule. As per Section 4(A), specified goods which have been listed in the third schedule of the ETA merit valuation under MRP.

Valuation under MRP is covered by Section 4A of the CEA, wherein the principal requirement is that the goods should be notified under Section 4A and there must be a statutory requirement to declare the retail price of such goods on the package i.e should be covered within the purview of the Legal Metrology Act, 2009 and the Legal Metrology (Packaged Commodities) Rules, 2011.

As per the PC Rules, the rules do not apply to packaged commodities that are meant for sale to industrial/institutional consumers. Institutional consumer has been defined to mean the institutional consumer like transportation, airways, railways, hotels, hospitals or any other service institutions which buys packaged commodities directly from the manufacturer for use by that institution. Industrial consumer has been defined to mean the industrial consumers who buy packaged commodities directly from the manufacturer for use by that industry.

The sale of bulk quantities of your product, not intended for sale in retail but for industrial buyers, should be outside the purview of the LM Act & Packaged Commodities Rules and therefore, would not attract MRP-based valuation. The goods manufactured and meant for industrial use needs to be cleared from the factory by you on payment of excise duty on the transaction value without abatement.

VAT not paid by vendor

We are a Delhi-based company manufacturing plastic toys. We locally procure certain goods like screws and wires from one of our vendors located in New Delhi upon payment of appropriate VAT against the tax invoice raised by the local vendors. We have been utilising the VAT paid on inputs to offset our VAT output liability. However, recently, we have been asked by the VAT department to reverse the input tax credit availed of, since the local vendor has not been depositing VAT with the department for the last three years. Please advise whether we need to reverse the input tax credit so availed of due to non-payment of VAT by the local vendors?

As per the Delhi VAT Act, 2004, a registered dealer can avail of input VAT credit against a tax invoice issued by the vendor in accordance with the provisions of the Delhi VAT law. Therefore, you need not reverse the input tax credit availed of in case the credit so taken is on the basis of a valid tax invoices issued as per the Delhi VAT laws.

Further, non-payment of output VAT by the vendor would constitute a default on its account and shall not impact the eligibility of your company to avail of and utilise the input VAT credit.

The replies do not constitute professional advice. Neither Ernst & Young nor FE is liable for any action taken on the basis of these replies. Readers may mail their queries to sme@expressindia.com

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