Credit of excise to be set off with service

[Anil Jangid]

my client having dealership of vehicles (car). they has service tax liability in servicing work of cars. can he take credit of excise duty on spare part purchase ???? today they are not registered with excise

[Ganeshan Kalyani]

No he cannot avail.

[Rajagopalan Ranganathan]

Sir,

As per Section 65B of Finance Act, 1994 "works contract" means a contract wherein transfer of property in goods involved in the execution of such contract is leviable to tax as sale of goods and such contract is for the purpose of carrying out construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, alteration of any moveable or immovable property or for carrying out any other similar activity or a part thereof in relation to such property.

If you invoice the spare parts separately and pay sales tax/vat on the same then you cannot take the credit of excise duty paid on such spare parts since such activity will amount to trading and trading is excluded from service. Your service of cars will fall under maintenance service and you have to pay service tax on the gross amount charged by you for providing the service.

[KASTURI SETHI]

I endorse views of both experts.

[DR.MARIAPPAN GOVINDARAJAN]

Thanks Rajagopalan Sir for your vivid explanation.

[Ganeshan Kalyani]

Nicely explained. hope the queriest has got his query solved otherwise he may post his further query.

[Mahir S]

Anil ji,

Such credit of excise duty on spare parts purchased cannot be availed and used by you for service tax liability, as explained above.

Regarding service tax payment, you have to collect service tax only for the Services and Labour/Repair charges provided during the Servicing of Cars.

No service tax is chargeable on the spare parts used/fitted during such service/repairs.

[KASTURI SETHI]

I agree with detailed reply of Sh.Mahir S. Sir.

AI Summary

Excise credit on spare parts cannot be set off against service tax; service tax applies to labour and repair charges. Excise credit on spare parts used in car servicing cannot be set off against service tax. Where spare parts are invoiced separately and VAT/sales tax is paid, they constitute a trading component excluded from service, precluding availment of excise duty credit. Service tax applies to the labour/repair or servicing charges, while spare parts fitted during service are not subject to service tax.