We are a Delhi-based service provider. We share our premises with a group company and are claiming reimbursement of common office expenses from our group company. These expenses are in the nature of maintenance, telephone, electricity, security, etc. Please advise whether service tax is leviable on the same?
You have a cost sharing arrangement with your group company with respect to infrastructural support i.e. providing office space and other business facilities. These premises are used by your group company to carry out business or commerce. The service tax authorities are likely to contend that the reimbursement of common expenses by your group company is a consideration for providing such infrastructural support services.
Such infrastructural support services should qualify as ?business support services?. Further, the maintenance and electricity charges relating to the use of such office space would also qualify as ?business support services? as the same relates to use of infrastructure facilities. Other costs such as telephone, etc are incurred in the provision of such services should also qualify as infrastructural support service. Infrastructural support services have been defined to include provision of office along with office utilities. Hence the reimbursement of common office expenses should be leviable to service tax as a ?business support service?.
A view can be taken that the present arrangement is merely sharing of costs and that no services have been provided. However, this view is contentious.
We have recently launched a new product in the market. Under a promotional scheme to market the product, we will be distributing the prizes to product buyers under a lucky draw scheme. Please clarify whether we need to pay VAT on such distribution of such prizes?
Value added tax (VAT) is levied on sale of goods. The term ?sale? has been defined under the Central Sales Tax Act, 1956 and other state VAT legislations as transfer of property by one person to another for a valuable consideration. One of the essential conditions for a transaction to qualify as sale is that it should be for a valuable consideration.
We understand that you would be distributing the prizes free of cost i.e. no consideration/ price has been charged or received with respect to the distribution of such goods. Further, the distribution of the prizes is not integrally connected with the sale of the products originally sold by you (since the sale of the original product only entitles the purchaser to a lucky draw coupon which gives a probabilistic right to the customer to win the prize).
The present activity of distribution of prizes under the ?lucky draw scheme? is separate from the original sale. Since there is no sales consideration for this activity, it should not qualify as ?sale?. Accordingly, VAT should not be applicable on the distribution of free prizes to the winners of the lucky draw.
We are a service provider giving manpower supply services in Delhi. We are not engaged in trading of goods. In the course of shifting our office to another place in Delhi itself, we would be selling old assets like furniture, computers etc. Please advise whether we need to pay VAT on them?
We understand that you would sell the assets within Delhi. Hence, the provisions of the Delhi VAT Act, 2004 (?DVAT Act?) would be applicable. Under the DVAT Act, the liability to pay VAT is on a ?registered dealer? or a person required to be registered under the DVAT Act. A ?dealer? has been defined to mean any person who in the course of his ?business? buys or sells goods. For this purpose, business has been defined to include provision of any service. Hence, you should qualify as a dealer liable to pay VAT. However, it needs to be examined whether you are required to be registered under the DVAT Act.
A dealer is required to obtain registration under the DVAT Act if the dealer?s turnover exceeds the ?taxable quantum? (which is prescribed as Rs 10 lakh, as on date). However, please note that the DVAT Act specifically excludes sale of capital assets to qualify as taxable quantum.
In case you have treated the old furniture, computers as capital assets in your books, such sale of old assets should not be included in the taxable quantum. Accordingly no VAT would be payable on such sale.
?The replies do not constitute professional advice. Neither Ernst & Young nor FE is liable for any action taken on the basis of these replies