Nitin Mehrotra (service) 28 March 2009

apllicability of service tax to railways

i am working as incharge of a particular section of Jamalpur locomotive workshop Eastern Railway.

I am doing maintenance of locos of NTPC also for which railway is earning revenue to the tune of 3 Cr. annually. as per definitions of service tax we fall under the category of maintenance & repair activity. At present we have paid service tax on the labour charge component of the total amount received from NTPC. we have not paid any tax on the material component of the charges.recently we received a show cause notice from Addnl. commissioner/ST/Patna that more tax is due on us as we have to pay service tax on the total gross amount received from M/S NTPC for the maintenance of their locomotives and not on only the labour charges part. IS IT CORRECT ???

what i as a common man new that the service tax is payable on the labour part only and not on those material which were used in providing the service or sold to the service receiver. anybody can please throw some light on the subject, please also state the relevant notification numbers and date of imlementation for framing a reply to the show cause notice.

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CA Sk Hasan Ali (Chartered Accountant) 15 April 2009

Notification No. 12/2003-Service Tax (20.06.2003)

1. In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts so much of the value of all the taxable services, as is equal to the value of goods and materials sold by the service provider to the recipient of service, from the service tax leviable thereon under section (66) of the said Act, subject to condition that there is documentary proof specifically indicating the value of the said goods and materials.

2. This notification shall come into force on the 1^st day of July, 2003.

The service provider would however not be eligible to claim cenvat credit of the duties on such goods and materials sold. Where he desires to claim credit of the duty of excise on goods and materials, he would have to charge service tax on the gross amount for the service which would include the value of such goods and materials sold.