Materials used in the job under port services

[Guest]

 

Dear Experts

I am running ship repair services inside the Mumbai Port Trust ( We are the registered in MBPT to do ship repairs within the premises of MBPT). Accordingly we registered ourselves under port services category. We do repairs which include materials in that. Since these are job work we cannot charge materials alone in the bill. But we know the quantum of materials used in each and every job value. Accordingly we charge 12.5% vat on the materials used in the job value, remaining value taken as Services, we charge 12.36% service tax. But Service tax dept urges us to pay the service tax on the total value i.e including material value. Their contention is that we cannot take material execmption of Notificataion No 12/2006. Since we are registered under MVAT, we have to pay vat also. But after paying vat on materials, we have to pay 12.36% on the total cost, including mtrls cost + mvat paid. Is Service tax deptt right in saying or what we follow is right?  Advise me

[YAGAY andSUN]

Service Tax (Determination of Value) Rules, 2006, the service tax will be levied on the gross value of the Invoice.  This is subject to Rule 5(2) and Rule 6(2) of the said rules.

[Guest]

Thank you for expert comment. But notification 12/2003-ST excempt the materials sold  on the condition that material documentation proof should be available .  Here in our case we are not doing trading but materials are used in the job hence we charge vat on materials and labour on services.  If we pay service tax on the mvat paid materials, does not it amount to double tax.

Even if we pay can we claim as cenvat credit ( materials and mvat amount )

please clarify

[Vijay Chitte]

As per circular No.233/2/2003-CX.4 dated 03.03.2006 has clarified that under Notification No. 12/2003-ST is available only to value of goods and material sold, subject to documentary evidance of such sale. Deduction is not available in respect of goods consumed during provision of service.

[Guest]

Thank you sir.

 

So am i eligible to take cenvat credit on the materials and mvat if we pay service tax on total

[Vijay Chitte]

As per your query, If you are registered undre MVAT and paying VAT on Material and service tax on service portion then you are doing right. You need not to pay service tax on material also, this has been also confirmed in the case Hindustan Aeronautics Vs. CST(2009) in this case cost of materials sold separately while providing maintenance service is not includible in value of service tax.

[Guest]

Thank you once again sir,

Since ship repairs jobs are based on Tariff which is inclusive of materials, labour, overhead, we cannot sold materials ( as is included in the job value). But we know the materials consumed in the job value, accordingly we pay vat on the materials and on the remaining part we pay service tax. What service tax dept contention is that the excemption is available only if we sell the goods and not if we use the goods in the job value.

My question is

1) If we service tax on the total ( after payment of mvat on materials) can we claim cenvat credit the on materials and mvat paid already on the same job.

2) It seems in the case Hindustan Aeronautics Vs. CST Hindustan Aeronautics vs CST, they have shown the materials separatly, hence they can claim service tax exemption finally can i have copy the case what you have mentioned. or tell me where i can download the case details

Thanks & regards

[Vijay Chitte]

There is no requirement that is should be "Sale" as per Sales Tax Law or there should be "Invoice" of Sale. The Notification only requires "Documentary evidane. Thus, evidance regarding use of materials while supplying service (Preferably supported by CA certificate) should be acceptable, this has been also held in CCE Vs. Roshan Lal Ravi Decorators (2008).

Thus, even if all conditions prescribed in notification Notification 12/2003-ST are not satisfied, Service tax cannot be imposed on value of material at all.

[Radha Arun]

Transfer of ownership of material, whether in the same form or another form is deemed as sale under Article 366(29A) of the Constitution. The payment of VAT on the material that was used is sufficient evidence of its sale. Hence the exemption 12/2003-ST will be available.

[Guest]

Thank you madam

But service tax department have been issuing notices to make the service tax on materials. So is this have to be fight it out at Appllet authorities???

[Radha Arun]

Yes, you will succeed in the appellate forum.

AI Summary

Material value exemption: VAT paid materials can be excluded from service tax when documentary proof is available. Dispute centers on whether materials used in port ship repair jobs must be included in taxable service value. The department relies on valuation rules and a circular limiting the notification exemption to goods sold with documentary proof; forum respondents counter that Notification No.12/2003 ST permits exclusion of material value where documentary evidence (VAT payment, consumption records, CA certificate) shows the material component and that such evidence has been accepted in authority. Practical advice: register under VAT, document material costs, pay VAT on materials and charge service tax only on the service portion while preserving records to resist assessments.