We have hired a travel agent through whom we book tickets for business-related travel of our employees. The tickets issued by the airline companies are in the name of passengers, that is, in the name of our employees who are travelling and not in our firm?s name. Further, the airline does not give us any invoice. Can we take credit of the service tax paid by us on such air tickets? If yes, on what basis can the credit be availed?
For the purpose of availing credit, first you would need to ascertain whether the services rendered by the airline qualifies as an ?input service? as defined under the Cenvat Credit Rules. In case the services qualify as an ?input service?, the issue primarily revolves around whether you could avail cenvat credit of the service tax charged by the airline (for non-economy international travel) on the basis of the ticket issued by the airline. The credit rules prescribe that credit is available on the basis of a signed invoice issued by the vendor containing the prescribed particulars. A ticket issued by the airline does not contain all these details, is not signed and is in the name of the passenger. Therefore, such ticket is not as per the format prescribed. However, we understand that these air tickets are system-generated and the format of the tickets issued by airlines are standard across the globe, which cannot be changed for service tax purposes.
Given the above limitations, you could take a view that credit should not be denied on procedural infirmities if the airline services qualify as ?input services?. However, since this is a practical issue, there is a possibility that the authorities may not accept the ticket as a valid duty paying document. Therefore, the risk of litigation still exists. Nevertheless, in order to bolster your case, you could obtain an undertaking from your air travel agent stipulating that the airline ticket has been issued by the airline to your firm. Also, you should obtain the service tax registration number of the service provider (that is, the airline).
We are planning venture into the business of retreading of tyres. One of our consultants has informed us that retreading of tyres qualify as manufacturing and hence is subject to excise duty. However, we have noticed that other companies that undertake retreading of tyres only levy service tax and VAT (and no excise duty). Please advise.
Excise duty is levied on the manufacture of goods in India. There are various court cases that have examined the concept of manufacturing. One of the conditions for manufacturing is that the process should result in a new commodity, having a distinct and separate identity from its inputs. In case of retreading, there is no new commodity that is being brought into existence. Retreading is only a process of restoration of a tyre so as to extend the life of the tyre. The original commodity retains its existence even after undergoing the process of retreading. Hence, retreading of tyres should not qualify as manufacturing. Separately, we would also like to highlight that under the excise tariff, ?retreaded tyres? are classified under Chapter 4012. The rate of duty on such tyres has been left blank in the excise tariff. In the absence of a specific rate of duty on such retreaded tyres, even if such retreading qualifies as manufacturing, there should not be any excise duty on the same.
We have awarded the contract for interior designing of our corporate office to an interior decorator company. We understand that at the time of payment, we are required to deduct works contract TDS at the specified rate. We have been advised by our contractor not to deduct any tax on advance payments made to them. Please advice whether we are required to deduct tax prior to the execution of interior designing work.
You are correct that depending upon the provisions under specific state legislations, you would be required to withhold tax at a specified percentage at the time of making payment to your contractor. With regard to works contract tax to be deducted on advances, most of the state VAT laws are silent on the issue. To avoid litigation, and since you are a contractee, we would recommend that works contract TDS should be deducted at the time of advance payment.
?Respondents are senior professionals at Ernst & Young. The replies do not constitute professional advice. Neither E&Y nor FE are liable for any action taken on the basis of these replies