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E payment of Service Tax – no penalty please Rs.50 Lkahs limit includes payment from cenvat credit

08 11 2006

Today DDT would like to offer a bouquet of the most fragrant flowers to the CBEC. We had raised several questions on the mandatory e payment and even conducted quick survey in the major cities, to give the Board the quickest feed back possible. We had also raised a question whether the limit of Rs. 50 Lakhs was for cash payment only or whether it includes payment from cenvat credit too.

We are extremely grateful that Board has come up with proper clarifications and even advised the field not to initiate penal action against the assessees for not making e payments. However the Board has made it clear that e payment is here to stay and the assessees are cautioned to expeditiously complete the procedural formalities for availing internet banking facility from designated banks and comply with the requirement of mandatory e-payment.

Board has clarified that for calculating the amount of Rs. 50 Lakhs limit,

++ For a Service provider having different registrations for different premises, the limit will be computed for each registration separately.

++ Similar is the situation in the case of a person paying service tax on taxable service received by him.

++ In case of LTUs, the cumulative Service Tax paid by all the registered premises will be taken into consideration.

++ For a person who pays Service Tax as a service provider and service receiver, both the payments are to be considered.

++ Both cash payment and cenvat credit payment should be taken into consideration for calculating the amount of Rs. 50 Lakhs.

Circular No.  88/06/2006 Dated, the 6th November, 2006

Service tax on  authorized motor vehicle dealers and service stations – Board issues clarifications

Board has clarified certain issues relating to Service Tax on authorized motor vehicle dealers and service stations .

(a) Whether the mark-up (profit) on the spare parts sold by a service station during the servicing of vehicles is liable to payment of service tax?

(b) Whether exemption can be claimed on the cost of consumables that get consumed during the course of providing service? 

Board’s Clarification: Notification No. 12/2003-ST. dated 20.06.2003, exempts service tax to the extent of value of the goods and materials sold by the service provider to the service recipient, if documentary proof of such sale exists and no credit of excise duty paid on such spares or consumables have been taken. It may, however be pertinent to note that for availing such exemption, the goods must be sold and consequently, they must be available (whether independently or as a part used for repair of a vehicle) for sale. In other words, the exemption would not be available to such consumables which have been consumed during the process of providing service and are not available for sale.

DDT: Board had in CIRCULAR NO. 699/15/2003-CX, Dated : March 5, 2003, clarified:-

During the course ofproviding service, an authorised service station also replaces engine oil, gear oil and coolants, etc., as per the request of the customer. The price charged by authorised service station for engine oil, gear oil and coolants is towards sale of these consumables to the customer. Therefore, the sale of consumable during course of providing service is akin to sale of parts and accessories and therefore value of such consumables is not includible in the value of taxable services provided value of such consumables is shown separately.

However, there are certain items such as paints used for painting body, etc., during the course of providing service, and form intrinsic part and parcel of service in so much as that these are not distinctly and separately identifiable from the services rendered. Therefore, value of such items, which form intrinsic part of service, is includible in the value of taxable service.

The activity ofproviding Teflon Coating at the time of sale cannot be construed as a service or repair provided by an authorised service station even though the same dealer may also be authorised to carry out after sale services. The authorised sales dealer and authorised service station are appointed to perform two distinct functions for the car manufacturer and therefore the activity performed at the time of sales of vehicle by the dealer is distinct from the service provided by the authorised service station. Normally, authorised service station comes into picture only after vehicle comes on road. Therefore, it is envisaged appears that any activity of sales dealer at the pre-sale stage or at the time of sale will not come under the purview of service tax.

Is there a change in stand? Is that circular withdrawn or is it still live?

(c) Whether ‘free services’ given by the authorized dealers (for which they are reimbursed by the vehicle manufacturers) are subjected to service tax?

Board’s Clarification: As the law does not in any way restricts the levy of service tax only on the service charges received from the recipient of the service, therefore, such reimbursements are subject to service tax.

DDT But isn’t this already included in the Valuation Rules?

(d) Whether the commission received by the automobile dealers from Banks /Non Banking Financial Companies (NBFC), for introducing the customers seeking finances / loans to such banks / NBFCs is to be subjected to service tax? Further, in case part of these incentives are passed on by the dealers to the customers, whether tax would be leviable only on that part of incentive, which is retained by the dealers or whether it would be on full amount?

Board’s Clarification: By this activity, the automobile dealers ‘promote or market the services provided by their customer (i.e., the financial institution), and are therefore covered under ‘taxable service’, namely, the “Business auxiliary service”. The tax is payable on the gross commission received by the automobile dealer. In some cases, the dealers share part of their commission with their customers to attract them. However, this is an independent transaction between the automobile dealer and the purchaser of the vehicle, and does not involve the service rendered by the automobile dealer to the finance company. Therefore, the tax payable by the dealer would be on the gross amount received from the financial company and not on the balance amount, i.e., after excluding the amount that he passes on to the customer.

(e) Whether service tax is chargeable on the amounts received for servicing /repair of the commercial vehicles?

Board’s Clarification: servicing, repair, reconditioning or restoration of specified types of vehicles (whether they are used for commercial purposes or not) fall under the category of taxable services. However, servicing of vehicles like trucks is not within the ambit of service tax.

Import of food articles including vegetable oil – Only PFA approved imports to be allowed.

Recently the Gujarat High Court has asked the CBEC to take a policy decision in consultation with the concerned Ministry as to in what circumstances the re-processing should be allowed if the goods are not found upto the mark as per laid down norms. Board notes that a circular had already been issued (58/2001) which provided that all the consignments of edible/food products which fail PHO testing shall be re-exported or destroyed. This instruction continues to be in force. However, it appears that in certain cases where the imported goods failed PFA testing, jurisdictional Commissioners have allowed re-processing. Such permission should not have been allowed by the Commissioners suo motto.

So Board reiterates that only the consignments of edible/food products which conform to the provisions of Prevention of Food Adulteration Act, 1954 and rules made there under should be allowed to be imported into India.

Board, of course does not say what would happen to Commissioners who would flout these instructions as they did the 2001 circular.

CIRCULAR NO. 28/2006-Cus., Dated: November 6, 2006

Live ACs posted in LTU

We are happy to report that the Board has posted two live Assistant Commissioners in the Bangalore LTU. Refer TIOL-DDT 465 - 09 10 2006 - Ghosts haunt LTU, Bangalore, when we reported that a dead man and a retired man were posted there. This time around they posted two serving and more importantly alive officers.

Until tomorrow with more DDT

Have a nice day.

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