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Contents

Valuation of Services. 1

Valuation of Gross Amount Charged in respect of Works Contracts: 1

Valuation in case of Pure Agent's services: 2

Valuation for Restaurant services: 3

 

Valuation of Services

Valuation of Gross Amount Charged in respect of Works Contracts:

Jagjit Singh Constructions Ltd. is providing the service of altering the damaged building of HCL Ltd. and also building 2 extra floors for the purpose of making the building workable.

 

Particulars

Amount

GAC charged by SP for providing such service

15,00,000

Cenvat Credit of duty on value of materials transferred

1,56,250

Service tax paid on input services

12,500

Cenvat credit on capital goods used on provision of WC Service

30,000

 

Also, compute the ST Liability if:

 

1. Value of goods adopted for the purpose of VAT payment is Rs. 10,00,000/-

2. The value of Materials transferred cannot be ascertained

3. For point 2 above, assume Jagjit Singh Constructions Ltd. Was providing the service of repairing of a machinery installed at HCL Ltd

Solution:

As per Rule 2A, of Service Tax (Determination of Value) Rules, 2006, Value of service in case of execution of works contract is Gross amount charged (-) Value of goods transferred.

Therefore in the given case, the value of service tax and its liability is determined as follows:

Case1:

Taxable GAC for Services

= 15,00,000 - 10,00,000

= 5,00,000

ST Liability

= 6,00,000 * 12.36%

= 61,800

(-)Cenvat Credit on Input Services

 

= (12,500)

(-)Cenvat Credit on Capital Goods *

 

= (15,000)

:. Net ST Payable

 

= 34,300

 

*(50% in the 1st year as per the Cenvat credit rules)

:. ST Payable will be Rs. 34,300

Case 2:

If the value of the materials cannot be ascertained, then the value of service portion shal be 40% of the total amount charged for the works contract:

Taxable GAC for Services

= 15,00,000*40%

= 6,00,000

ST Liability

= 6,00,000 * 12.36%

= 74,160

(-)Cenvat Credit on Input Services

 

= (12,500)

(-) Cenvat Credit on Capital Goods

 

= (15,000)

:. Net ST Payable

 

= 46,660

 

Case 3:

If the value of the materials cannot be ascertained, then the value of service portion in case of Works contract relating to repairing of installed machinery will be 70% the total amount charged for the works contract:

Taxable GAC for Services

= 15,00,000*70%

= 10,50,000

ST Liability

= 10,50,000 * 12.36%

= 1,29,780

(-)Cenvat Credit on Input Services

 

= (12,500)

(-) Cenvat Credit on Capital Goods

 

= (15,000)

:. Net ST Payable

 

= 1,02,660

 

Valuation in case of Pure Agent's services:

Mr. Amar is a commission agent for Carefree goods ltd. He purchases goods worth Rs. 50,00,000/- on behalf of Carefree goods Ltd. The seller of goods raises invoice in the name of Carefree Goods Ltd. Mr. Amar raises an invoice of Rs. 1,50,000/- as his commission charges This invoice also includes the above mentioned amount of Rs. 50,00,000/- . Compute the service tax liability and provide proper explanations for the same What would be the service tax payable if Carefree Goods Ltd pays Mr. Amar Rs. 1,40,000/- as a full & final settlement for its services. ( Rs. 50,00,000/- is Re-imbursed in full)

 

Solution:

As per Rule 5 of Service Tax (Determination of Value) Rules, 2006, any expenditure incurred by Service provider in the course of providing service should be treated as consideration & shall be included in the value for the purpose of charging service tax.

However, if such an expenditure is incurred in the capacity of a pure agent, then they should be excluded from the gross amount.

Mr. Amar is a pure agent of Carefree goods Ltd. since:

                 i.        He entered into a contractual agreement with Carefree goods Ltd. to act as his agent

                ii.        He does not hold title to goods at any time (the invoice is issued in the name of Carefree goods Ltd. and not in the name of Mr. Amar)

               iii.        He does not use the goods at any time

               iv.        He receives the actual amount incurred to procure the goods

Therefore, the service tax liability of Mr. Amar can be calculated as under:

GAC

= 1,50,000/-

ST Payable @ 12.36%

= 18,540/-

In case if he receives only Rs. 140,000/- as full and final settlement, the this amount will be considered as inclusive of ST as per section 67 and his ST Liability is calculated as under:

GAC

= 1,40,000/-

ST Payable @ 12.36% (140,000*12.36/112.36)

= 15,400/-

6.    Mr X buys USD 5000 in exchange of INR, The current selling rate of USD is 56. RBI ref rate is 54.5 Calculate the GAC in the given case. Will the answer be different in case if Mr X buys USD in exchange of GBP 3075. (RBI Ref rate for GBP = 85)

 

Solution:

 

CASE

GAC = (SR - RBI Ref rate)*units of currency

ST under normal provisions

ST Under composition scheme

1

= (56-54.5)*5000 = 7,500/-

= 927/-

= 120+108* = 328/-

2.

= 1%*3075*85 = 2,614/-

= 323/-

= 120+96** = 216/-

 

* 0.06% of [(5000*56) - 100,000]

** 0.06% of [(3075*85) - 100,000]

 

Valuation for Restaurant services:

Khaana Foods Ltd. Is owning a restaurant called Khaana Khazana. Its gross amount charged for the month of January totaled to Rs. 45,00,000/-. Calculate the ST Payable by Khaana Foods on its Turnover for the month of January.

 

Solution:

As per Rule 2C of Service Tax (Determination of Value) Rules, 2006, service portion in any activity wherein supply of food or any other article of human consumption is supplied in any manner as a part of the activity at a Restaurant will be 40% of the Total amount charged for the activity.

Therefore, in the given case the service tax liability will be calculated as follows:

GAC =40% * 45,00,000 = Rs. 18,00,000/-

Service Tax Payable = 18,00,000 * 12.36% = Rs. 2,22,480/-