Works Contract, Service Tax

[Ashwani Rustagi]

I need clarification  whether the following service taken from an individual or firm would be subject to service tax under Reverse Charge Basis: 

1. Photocopy machine taken from an individual on monthly rent – monthly rent fixed up to X number of copies, thereafter, extra charges per copy;
2. Employee Uniform purchased from the vendor with company logo;
3. Purchase of company stationary as per our speciation;
4. Purchase of Packing boxes as per our specification & logo.

 Please advise whether the above service would be covered under Works Contract & would be liable to service tax under reverse charge. Also clarify, whether we can take  Cenvat Credit of such service tax.

 Regards,

 Ashwani Rustagi | Financial  Controller | Kadimi Tool - India 
( Phone: 91-124-2439593 | 2 Fax: 91-124-2341092 | Mobile: 91-9810013724 I

* E-mail: [email protected]

 

Posts / Replies

[sanjeev bajaj]

Dear Ashwani,

Before going for reverse charge, you have to look whether service tax is leviable on the activities mentioned above or not.

1.  In the case of renting of photocopy of machine, the control over such machine has to be seen. Whether, the control lies with you or with person who has given it on rent. It will determine whether the same falls under the category of Right to Use or not. If it falls under this then no Service Tax aas per clause (f) of Section 66E of the Finance Act.

2. With respect to item 2 to 4, in my opinion, it is not works contract but contract for sale on which VAT is leviable and treated as trading of goods. Decided in various judgements.

[Ashwani Rustagi]

Dear Sanjeev,

Thanks for your quick response.

Vendor has put photocopy machine in our office and charging monthly rental besides charges for extra copy beyond the prescribed limit as per our purchase order. The control of machine is completely lies with the vendor and he does provide all consumables including toner  to photocopy machine as and when required.

Thanks,

[sanjeev bajaj]

As stated earlier, there is very thin line of control i.e. if the operation of machine whether to operate or not at any particular time is with them, then it can be said that control lies with the operator. You have to decide going into the clauses of the contract/ agreement. If the control does not lies with you than service tax is payable . However, for reverse charge, it is to be seen whether it falls under clause (f) or clause (h) of section 66E of the Finance Act. i.e renting of goods or works contract. If falls under Works than Joint Reverse charge mechanism applies.

In Your case, it seems the pater is yours but the toner is of the other party. In my opinion, it may fall as the renting of machine.

[Ashwani Rustagi]

Yes, Sanjeev. It is renting of machine and vendor has the responsbility of maintenance of machine and toner. Photocopy papers are of ours. Besides fixed amount of rent, if the number of copies exceeds than the agreed number of copies, the extra charges per copy needs to be paid to vendor. Would this transaction would come under purview of Works Contract.

 

[sanjeev bajaj]

In my opinion, no.

It is services for hiring, hence no reverse charge.

[RAMDAS IYER]

dear Ashwani,

1. Photo copying machine-- here the machine is delivered to you and its operation [ taking photo copies] is in your control. Hence, it wil be a case of transfer of right to use goods and it will attract VAT, not service tax. we face a similar situation, when we hire welding machines, which are delivered to us and is operated by our welders to carry out welding. the vendor charges VAT in this case.

but when we take on hire a diesel gen set to  produce electricity to operate our machines, the vendor sends his operator to operate the gen set and it is in his control, though made available in our work place. here it is a case of service and he charges service tax

pl mention in your contract for hire of photo copy machine that the possession and control of the machine will be with you solely during the period of contract. then there will be no interpretational vagaries.

2. pionts 2,3, and 4 are sale of goods and hence will not attract service tax.

regards,

Ramdas.S.Iyer

chennai

 

 

[sanjeev bajaj]

I agree with the views of Mr. Iyer but as stated by Mr. Ashwani that the control lies with the person who has rented the machine. The contract, as stated by me earlies, should be clear in this respect. Unless and until, clauses are not clear, both the departments will levy the respective taxes.

However, it is clear there is no works contract, hence no reverse charge.