Some more Service Tax queries from our seminar
We bring you a few more questions and answers from our Hyderabad seminar:-
Question:
We are purchasing raw material from M/s ABC on F.O.R destination basis. M/s ABC pays the freight and charges in their Commercial invoice raised on us. We make payment of the commercial bills including the freight amount. In these case the transporter issues consignment note on us without showing freight amount in it. In the consignment note it is mentioned -
Consignment note is issued on a/c of ABC
To be billed at ABC, Mumbai.
Person liable for Service Tax – consignee.
In view of the above, the following query is raised.
Can we be held responsible to pay Service Tax in absence of freight amount in the consignment note and when freight is paid to the transporters by ABC and not by us, Should we pay Service Tax on Freight shown in Commercial Invoice?
Also view about Cenvat credit on outward transportation?
Answer :
Whether the tax amount is shown in the consignment note or other is not the criterion for liability of tax– The person liable is one of the seven categories– reimbursement is not the criterion – if consignor is paying the freight charges, then service tax liability is on consignor– why should consignee pay service tax when he is not legally liable to pay service tax? If department requires to catch the defaulter then the service tax liability will be on the consignor.
There is a lot of conflict on this – The judgment of Grasim Industries has settled this where transportation upto the point of clearance – payment upto the place of removal the credit can be taken but thereafter, the credit can be taken by the consignee if that transportation is input for the consignee - freight charges are input services for the consignee – if services are not input services then the consignee cannot
Liability to pay and eligibility to take credit – they are two different matters – there is no nexus between them – on the payment part, the liability depends on who pays the freight – whereas for taking credit, the credit part upto the place of clearance, consignor can take credit, thereafter the consignee can take credit if it is input service, which happens if it carries input goods for the consignee – If it is interpreted in any other manner, then two people will be have right to take same credit and hence there will be two legal claimants for the same credit – law cannot be interpreted to bring out a situation of legal absurdity.
Question:
We have entered into an agreement towards ‘ know how and technical assistance and service agreement’ with XYZ , Japan by which it granted non-exclusive right to us to use their technical information and know-how to manufacture and sell the products and in turn we will pay to XYZ, Japan a) An initial fee of fifty million Japanese Yen in three instalments b) Running royalty on sale of goods c) fee for training of our staff at XYZ, Japan’s works.
Our query in this regards is – are these services taxable?.
Answer:
a and b above there is no dispute – both will be taxable – fee for training the staff could be tricky – if it is essential for transfer for the above agreement , then it will be taxable.
Question:
Pure labour oriented contracts , come under erection and commissioning having commercial value of about 15%, can they opt for 2% under new tax rates? .
Answer:
Pure labour contract is not a works contract and hence cannot. The question of Composition scheme does not apply. The status of contracts will have to be checked.
Question:
We have several works contracts. Can we opt for composition in respect of some works and regular for some contracts?
Answer:
Yes.
Question:
Education cess and SHE cess is levied . This particular tax is for improving educational service in India. My question is I cannot send my child to a school run by Government for many reasons. Am I eligible to get relief to send my child to another Government school where I incur boarding expenses or to any other private school?
Answer:
Are you ready to make me the education minister? (in a lighter vein)
Question:
We are manufacturer of an exempted product under job work . We charge only job work charges. Whether any service tax is payable on job work charges?
Answer:
As far as process amounts to manufacture – whether there is exemption or not does not matter – there will not be any service tax
Question:
When advertising agency’s service , market research agency’s service are input service for a manufacturer of final products but why bar input credit on services like CHA service and port service ( utilized for exporting my final products )
Answer:
The problem is these services like CHA service and port service are provided after the goods are cleared. Technically the service tax paid cannot be allowed as input service as the same (CHA service and port service) is not in or in relation to manufacture of the final products. The services such as advertising agency’s service, market research agency’s service are specifically given hence allowed. But the input service definition needs a re-look and is being considered.
Question:
Whether road repair or maintenance work is taxable under Management Maintenance Repair services (MMRS) or under Commercial Construction service?
Answer:
Commercial construction service specifically excludes roads and hence the same will not be taxable under the said head. However MMRS talks about all immovable property and roads are immovable property and therefore repairs of roads is a taxable service and would be taxable under the head of MMRS.