Questions on taxation and service tax, addressed by Saloni Roy & Jayanta Kalita, of Ernst & Young
Our company provides construction services. We rent trucks from vendors which are used for providing output services. The vendors charge service tax under the category of ?supply of tangible goods services?. Do such services qualify as input services and can credit of the same be claimed by us? Please clarify.
Post-April 2011, the definition of ?input services? specifically excluded services in relation to supply of tangible goods services where such services relate to a motor vehicle which does not qualify as a capital good. We understand that trucks qualify as ?motor vehicles? as per the Motor Vehicles Act, 1988. Therefore, credit of ?supply of tangible goods? services with respect to renting of such trucks would be available only if such trucks qualify as capital goods.
During the period from April 1, 2011 to March 31, 2012, the definition of ?capital goods? included motor vehicles registered in the name of service provider used for providing certain specified services (such as outdoor catering services, rent-a-cab services, etc). However, since ?supply of tangible goods services? (i.e. the services rendered by your vendor) are not covered in the list of specified services, the trucks shall not qualify as capital goods. Hence, the services rendered by your vendor would not qualify as an input service during the same period and accordingly, no credit shall be available to you.
Post-April 1, 2012, the definition of capital goods has been amended to include all motor vehicles (except certain specified vehicles) used for providing output services. However, trucks (classified under Chapter 8704) continue to be in the list of specified vehicles and would do not qualify as capital goods. Hence, the services rendered by your vendor would not qualify as an input service and accordingly, no credit shall be available to you.
CST on resale of goods
We are a Delhi-based trader of readymade garments. We had imported certain goods from a dealer located in Maharashtra for resale and had issued Form C for the same. Accordingly CST was levied at the rate of 2%. However, instead of re-selling the garments in Delhi, the garments were transferred to our branch located in Haryana and were then sold to customers. The authorities have contended that since the goods have not been purchased by us for the purpose of resale to customers, the CST should be levied at the corresponding VAT rate of such goods instead of the concessional rate of 2%. Please clarify.
Movement of goods from one state to another is subject to CST. The CST rate is either equivalent to the local VAT rate of the dispatching state or 2% subject to issuance of Form C. Form C can be issued only by a registered dealer for inter-state purchase of goods for specified purposes, including for resale. We understand that in the present case even though the garments are transferred by you to your branch office located in another state, the purpose remains to resell the garments. Since the intention of the purchase is to resell the garments (and the garments have actually been sold in Haryana), CST may be levied at the rate of 2% on issuance of Form C. It has been held in several judgments that a branch is not independent and distinct from the main office. Hence, sales made by a branch, even if located in another state, shall be considered as resale by the main office. Hence, we understand that even though the readymade garments are stock transferred by you and subsequently sold by your branch office, it shall qualify as resale and CST would be levied at the concessional rate of 2%.
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