AMC stands for Annual Maintenance Contract. AMC provides security on all the components let that be the large manufacturing machine of the company or the basic components like the printer or the computer. It gives the benefit of repair and maintenance to such products and the time period of the contract might vary from 1 year to 3 years according to the need.
This time period can also be extended further as per the requirement. Mostly, AMC only includes service support but it is up to you to choose the comprehensive maintenance contract for IT Support as it will provide replacement service at an affordable price.
Confusion on GST on AMC
The GST rate on the AMC varies from state to state due to which confusion in the companies has arisen because of the tax authorities of AARs.
An industry expert said as per the states the AARs have fixed the GST rate for the AMC that is given to the customers by the companies on different products varying from 12 per cent to 18 per cent and even to 28 per cent.
Another confusion arose on 25th April, with the appellate authority for advance Ruling in Rajasthan because it confirmed the decision of the AAR in which the 12 per cent, 18 per cent or 28 per cent GST will be charged as per the services that will be given under the agreement of the comprehensive maintenance services to the equipment of the customer. Apart from this service, other services like equipment parts supply and services agreement including supply and replacement of the spare parts will also be levied.
Read Also: Goods & Services Tax Impact on Service Sector in India
AMCs are used for domestic consumer durables maintenance along with automobiles. Different companies take AMC for providing maintenance to their large machinery.
Fear of the Service Providers
Experts said that the companies that are getting the advantages of maintenance from AMC are worried because the tax authorities might dock them regarding these contracts with the AMCs. Apart from this, the service providers are confused about the tax rates that should be charged to the customers.
AARs help in giving tax liability to the taxpayers in advance. But on the other hand, AARs also created confusion on the GST levied on AMC because there are different AARs in different states. Some of the AARs consider them as the ‘works contract’ while others consider them as the ‘composite supply’.
Similar: Easy to Understand Mixed and Composite Supply Under GST
Where Did this Situation Lead To?
Because of this situation, the experts had to knock on the door of the central government.
Harpreet Singh, partner at KPMG said: “With conflicting AARs on the taxability of AMC contracts, the need of the hour is for the government to come out with a circular covering all varieties of maintenance contracts and providing guidelines on taxability in each case”.
According to the experts, the main objective of AMCs is the service but it does not mean that the form of the good is not in the contract value. Rightfully, the major part of the AMCs is the form of the goods.
Singh said “From a consumer standpoint, the intention behind entering into a maintenance contract is to avail uninterrupted services of any product. Accordingly, in my view, the correct treatment of an AMC contract is to treat the same as service and tax accordingly”.
In one of the conditions, the AMC in Uttar Pradesh AAR is known as a ‘composite contract’ which includes the supply of both the goods and services. 18 per cent of GST is levied on the AMCs. The major supply of goods and services is only contingent on the maintenance contract.
On the petition related to the tax of AMC, Maharashtra AAR has named it as ‘composite supply’ which keeps all the engines in a proper condition. It is believed that if in the contract there is the supply of two or more goods or services, which is in common business together, then it will constitute ‘Composite Supply’ in which 18 per cent of GST rate will be charged.
What is current GST rate of AMC for single domestic users