Service tax applicability on gift packing

[sunil jain]

In case of retail store, gift packing is also done for which packing chages are also recovered. Will this amont to taxable service under category 'Packing servives[vide sec65(76b)]'. vat is paid on 80% of charges as per vat law. If s.tax is to be levied, whether on full amt charged or net of cost of packing material(material cost not disclosed in invoice but vat is pd on 80% value))

[DEV KUMAR KOTHARI]

Packing of goods in shop or store for selling and delivering goods is incidental to sale of goods and not as a separate service provided. Therefore, there should not generally be any service tax. However, as only 80% of charges are considered as sale for VAT, question arises as to whether legally under provisions of VAT only 80% of charges are considered as sale and balance 20% as service charges for packing. Why 20% has been left out from levy of VAT? Whether it is as per any understanding arrived amongs VAT department, Service tAx department and trade association etc. In this situation 20% can be considered as charges of service. Only on consideration of all related aspects, of nature of packing, labelling, mailing ,the relationship between aprties, total service charges received for packing on 20% basis, other services rendered,it can be decided whetehr service tax is chargeable or not on balance 20% of charges.

AI Summary

Packing services incidental to sale may be non-taxable, but a residual portion treated as service can attract service tax. Retail gift packing done by a shop is typically incidental to the sale of goods and not a separate taxable service. However, when VAT treatment excludes a residual portion of packing charges from sale consideration, that excluded portion may be treated as consideration for a distinct packing service and could attract service tax; this requires factual assessment of the nature of packing, ancillary activities, the parties' relationship, and the apportionment of charges.