Service tax or VAT

[Guest]

Hi Team,

We have started a new business wherein we procure second hand clothes from people and sell it. Below are the steps involved in a transaction to give you a brief idea about our model:

1. Potential seller to give us the basic details of the garment like the Original price of the garment, condition of the garment, brand and pictures of the garment
2. If the garment is in fashion and in a good condition, we send a confirmation to the seller along with a suggested selling price.
3. Post approval from the seller, the seller couriers us the garments and the garment is collected on approval basis
4. After receiving, the garment is thoroughly quality checked, dry cleaned and photos are clicked and uploaded to the website
5. Once the garment is sold, the amount is transferred to the seller post deducting our commission

We do not have ownership of the garment at any stage. Would we be taxed for VAT or Service tax and how much? We have registered ourselves as a partnership firm and are starting a website soon.

Thank you in anticipation!!

[Akash Deep]

Dear Pooja,

As there is no transfer of property in garments to you, in the whole process you are acting only as a person who is arranging and facilitating supply of goods between two person. In other words you are acting as an intermediary as provided under place of provision of service Rules, 2012 as recently amended by Notification No.14/2014 dated 11.7.2014. Place of provision of such service shall be location of service provider.i.e. you. as you are located in taxable territory (i am assuming you are not doing this business in JandK) place of provision is also ion taxable territory. No doubt such activity is covered under definition of service. Such activity is not covered under exemption notification no. 25/2012 dated 20.6.012. Being so you services are taxable and you need to pay service tax on the amount retained y you as commission. no doubt you can claim the amount pertaining to service tax from you client i.e. garment owner.

Please pay tax on your services and do business with high head. best of luck for our business. for any other query you can call me on 9873463912.

Regards

Akash Deep

[Guest]

Thank you so much for the help Akash.

We appreciate the detailed explanation.

We will confused as we were thinking our business would fall under 'Trading of goods' in the Negative list of Service Tax.

Thank you

Regards,
Pooja Sukhija

[Akash Deep]

Dear pooja,

your business is not under trading of goods. In sale and purchase of goods transfer of property in goods is the sine qua non. in your case you never own the property in goods and that is why you can not transfer it. any way you can not give what you dont own. once you are not transferring property in goods there can not be sale of purchase of goods. your activity is not trading of goods.

any way, you can contact me directly for any query in service tax, we are also a new firm looking for new clients. our motto is grow together with clients. feel free to contact me directly on akashlaw@gmail.com.

Regards

[Madhukar N Hiregange]

The conditions under which you work may ensure that what you are saying and what is in words matches. The ownershio clarity is paramount.

AI Summary

Intermediary service: commission from facilitating second hand garment sales is taxable where provider is in taxable territory. Where an operator procures and lists second hand garments without ever acquiring ownership and is remunerated by retaining a commission, the activity is an intermediary service. Under the Place of Provision Rules the service is provided at the service provider's location and, if that location is within the taxable territory, the service is taxable. The activity is not trading in goods and the exemption relied upon does not apply; service tax is payable on the commission and may be recovered from the garment owner.