Service tax applicability

[Guest]

One of my client is authorised dealer of Maruti Udyog Ltd. Maruti Udyog Ltd. sells extened warranty thru dealership and in retrun it share part of it sale price with dealers. Whether service tax is applicable on this amount received from MUL. Whether dealer is bound to deposit service tax on this amount. No Vat is applicable on sale / purchase of this extended warranty booklet.

[Surender Gupta]

The transaction is to be seen in view of arrangement between the dealer and MUL. If MUL is showing this amount as commission to dealer, certainly service tax is payable.

AI Summary

Service tax liability arises when manufacturer payments to a dealer are characterised as commission on extended warranty sales. Where a manufacturer treats payments to a dealer as commission for sales of extended warranties, those payments constitute taxable receipts and service tax is payable; the dealer receiving such payments is liable to account for and deposit the service tax. The matter depends on the contractual arrangement between dealer and manufacturer, and VAT is not applicable to the warranty booklet in this instance.