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SERVICE TAX - Mandatory E-Payment of Service Tax for major assessees
November, 18th 2006

SERVICE TAX - Mandatory E-Payment of Service Tax for major assessees reg. - Circular No  88 /06 / 2006-ST,Dated : 6-11-2006

The e-payment of service tax has been made mandatory w.e.f . 1.10.2006, for all assesses who has paid Rs 50 lakh or more in the preceding financial year or in the current financial year.

2. It has been brought to the notice of the Board that there are certain problems like procedural delays in opening of account in designated banks and issue of users-id and password by banks for internet banking; delays in passing a resolution by the Board of Directors of a company to authorize any person for making e-payment ( a requirement stipulated by banks for internet banking); systems failure, particularly at banks end, are causing some difficulties to the assessee in complying with the requirement of mandatory e-payment of service tax. Keeping in view the systemic and procedural problems during initial phase of implementation of this scheme, the field formation may take a lenient view in such case where there is reasonable cause for failure to make mandatory e-payment and penal action may not be initiated. At the same time, such assesses should expeditiously complete the procedural formalities for availing internet banking facility from designated banks and comply with the requirement of mandatory e-payment.

3. Certain doubts have also been raised as regards the interpretation of qualifying amount of service tax of Rs 50 lakh paid by the assessee, as discussed below.

3.1 For a person providing taxable service from more than one premises, where each such premises is separately registered with the department for payment of service tax, the criterion of Rs 50 lakh would apply to each registered premises individually, as each registered premises is separately an assessee in terms of law. Similar is the situation in the case of a person paying service tax on taxable service received by him. However, in case of a Large Taxpayer (LTU), the cumulative service tax paid by all registered premises of such Large Taxpayer will be taken into account for satisfaction of criterion of payment of service tax amount of Rs 50 lakh.

3.2. If a person pays service tax from a registered premises for both the taxable services provided by him and the taxable service received by him on which he is liable to pay service tax, the cumulative service tax paid, i.e., service tax paid on taxable service provided from and service tax paid on taxable service received in such registered premises would be taken into account for the purposes of satisfaction of criterion of payment of service tax amount of Rs 50 lakh.

3.3 Further, for the purposes of calculation of this amount of Rs 50 lakh the total service tax paid by cash plus CENVAT credit would be taken into account as service tax paid amount. Therefore, if an assessee has paid service tax of Rs 50 lakh (in preceding financial year or the current year) in cash plus CENVAT credit, such assessee, if he pays any further service tax in cash, would be required to make mandatory e-payment.

4. Trade and field formations may be advised accordingly.

5. Hindi version will follow.

F. No. 137/127/2006-CX.4

(Gautam Bhattacharya)
Commissioner (Service Tax)

SERVICE TAX - Service tax issues relating to authorized motor vehicle dealers and service stations -reg. - Circular No 87 / 06/2006- ST,Dated : 6-11-2006

It has been brought to the notice of the Board that certain doubts have arisen in respect to activities undertaken by authorized motor vehicle dealers and service stations. The issues are as mentioned below:-

(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?

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

(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?

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

2. The issues have been examined. As regards, the issue relating to sale of spare parts and consumables, 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.

3. As regards free servicing (where the customer does not pay any charges) of the motor vehicles, normally the service charges are reimbursement by the vehicle manufacturers, who promises such a facility to attract customer. 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.

4. In some cases, the automobile dealers help the buyers of the vehicles for arranging the finances. For this, they have a tie-up with Banks / Non-banking Finance Companies. The customers are advised by the dealers to approach such financial companies for taking loans. The automobile dealers get commission from such financial companies for directing the customers to the latter. 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.

5. As regards the applicability of service tax on the activity of servicing /repairing of the commercial vehicles, it is clarified that as regards authorized service stations, the taxable service, means any service provided or to be provided, to a customer, by an authorized service station, in relation to any service, repair, reconditioning or restoration of motor cars, light motor vehicles or two wheeled motor vehicles, in any manner. Further, a light motor vehicle means any motor vehicle constructed or adapted to carry more than six messengers, but not more than twelve passengers, excluding driver. Similarly, as per the Motor Vehicle Act, a motor car means any motor vehicle other than a transport vehicles, omnibus, road-roller, tractor, motor cycle or invalid carriage. In other words, 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.

6. Trade and filed formations may be advised accordingly.

7. Hindi version will follow.

F.No. 137/128/2006-CX-4

(Gautam Bhattacharya)
Commissioner (Service Tax)
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