Internet Service Provider - Service tax on Hardware and software

[Guest]

One of my client is Internet Service Provider. It entered into turnkey projects with various government agencies. Project comprises of Supply, Installation and commissioning of Hardware, Software and other components to set up a LAN in Govt. Warranty for 1 year was also provided. Separate PO for Hardware and services have been received, invoices were also issued separately. Dept. is asking for Service tax on Hardware and software also considering the whole cont. as turnkey project though 98% of the cost is of Hardware, software and components and only 2% is services. Whether the contention of the same is right? if not any favourable notification, circular or case laws?

[Ravi Chopra]

1 Manner of billing does not effect the nature of transaction and amount liable to service tax. 2 Technally speaking it is a matter of facts and figures. If your supply of material of hardware and value charged thereof is bonafide and independent transaction, action of the department is illigal and unwarranted.

AI Summary

Service tax on turnkey projects contested where hardware and software are invoiced and supplied as independent goods. A dispute concerns imposition of service tax on a turnkey LAN contract where hardware and software were invoiced separately. Billing format does not determine legal character; the key question is whether transfers of hardware and software are genuine, independent supplies of goods. If so, treating the entire arrangement as a taxable turnkey service is unwarranted; resolution depends on factual allocation of value, contract terms, and documentary evidence.