service tax payable on free issue material

[Former Member]

Hi experts

Subcontracting  activity involves sending  free issue components to the subcontracting  Vendor for some processing and these free issue components are issued (consumed) through mov type 543 while doing GR against Subcon PO.

Principal party (sender) has to charge (pay) service tax on the value of the free issue components sent for subcontracting activity. As we know, components are not maintained in the main PO line item so we can't assign the tax code for the free issue components.

Kindly suggest as how the service tax can be charged (to be borne by the principal party i.e. sender) in free issue material sent for subcontracting.

thanks in advance.

[kailas_ugale]

Hi,

Following SAP note may helpful to you

SAP Note 1242881 - Service tax posting in invoices from

Goods transport agency

Regards

Kailas

[former_member213924]

Hi Rajat,

In subcontracting case service tax will be charged by vendor on finished product not on components issued to vendor.

e.g.

ABC- Finished product

     - xyz- component issued to vendor

     - 123- component issued to vendor

Vendor will charge service tax on ABC material as he is providing services for this material.

xyz & 123 is purely our component.

Regards,

Samir Rana

[Former Member]

Hi Sameer,

Agreed with you on first part (i.e. tax on ABC). Please read govt of India notification (for service tax on 2nd part i.e. components 123 and xyz in your example) that w.e.f. 1st of July, 2012, service tax will be applicable on components value which is being sent for subcontracting activity, ALSO.

Hence, the requirement is there, how to handle this scenario in SAP.

regards

[Former Member]

Hi,

First question is why service tax is coming on Materials. I think that service tax should only come on services that are charged.

give the detailed business scenario again with the steps involved likely with example.

Ravi

[Former Member]

Hi Ravi,

post july 2012, service tax is to paid @12.36% by the party on the value of free issue material being sent to subcon vendor for subcontracting (job work) activity. This is not related to (hence, in addition to) the service tax charged by the subcon vendor.

hope the requirement is clear.

[Former Member]

HI,

I am Sorry Rajat,

We have that Scenario here.

Just create a condition copying the freight FRB1, just call that as ZFMI- free material issued value

Put that condition in pricing procedure as shown below with the subtotal 6.

Regards

Ravi

[Former Member]

Hi,

Have you tried the suggestion Rajat.

Regards

Ravi

[Former Member]

Hi Ravi,

Thanks for the reply.

Kindly refer the actual requirement as under:

Sr No.	Desc		Amount
1	PO line item price (including subcon charges and used by the subcon vendor)		1000
2	Free Issue material supplied by us (customer)		2000
3	VAT charged by the subcon vendor @ 5% (on S.No. 1)		50
4	Service tax charged by subcon vendor @ 2.4% - non setoff (on Sno. 1 & 2)		72
5	Education cess @2% - non setoff (on S.No. 4)		1.44
6	S.H. Education Cess @1% - non setoff (on S.No. 4)		0.72

Now, please suggest the settings to be maintained in new condition as well as mapping in the pricing procedure. We use TAXINN.

thanks a lot in advance

[Former Member]

HI,

Point is maintain the Service charges+material used by SC vend+ VAT as service charges.

for material issued by us, Create a copy of the freight condition and mark it as statistical condition and use the subtotal 6

for vat condition, Create a VAT condition as negative, copy of the freight value condition and mark it as statistical and use the subtotal 6

Example:

A= Service charges= Actual service charges 100+ Material used by vendor 100+ Vat 10=220/-

B=Material issued by us= 100/-

C=reduction of vat under scheme= -10/-

ST will be calculated based on the above amounts=(A+B-C)=220+100-10=310.

Hope this will solve your issue.

Regards

Ravi

[Former Member]

Hi Rajat,

    We are also facing the same issue and i have tried all the above mentioned options but did not achieve the required result.

Kindly provide the solution if you have resolved the same.

Regards,

Supriya

[Former Member]

Hi Supriya,

The said solution will not work if you consider the scenario mentioned by me in above communication.

I have raised this issue to SAP global support also, but they do  have any solution to this currently. So, we are posting the required accounting entry directly in FI as an alternatively.

regards

[Former Member]

Hi Rajat,

In this case , you need to create another line item with serive tax and then execute the scenario.

[Former Member]

can anyone look into this please.

[Former Member]

Hi Rajat,

While creating the SUB CON Challan u dont require to put anything for the Material been sent to Vendor for Consumption through 541, Sub Con Challan itself is used for Excise and accordingly it is reconcilledd after material is received.

If there is service Charge which is charged by Vendor then Tax code can be selected at Item level for the Main Component ( FG or SFG ) and accordingly he will be paid for only the Services Vendor has provided.

Anand Singh