GST: You May Be Paying Higher Tax On Annual Maintenance Bills


Conflicting the ruling from the Income Tax department authorities of advance rulings in different states on the applicable Goods and Services tax Rate on the contracts of the Annual maintenance have also caused confusion in the industry.

The various Authorities of Advance Rulings have also pegged the GST on the annual maintenance contracts that companies offer to customers of the different products and equipment at 12% or 18% or even with the 28%, industry experts revealed.

The latest one on Thursday from the appellate authority for the Advance Rulings in Rajasthan has further added to the confusion. It also upheld AAR’s decision that taxability of services provided on the equipment customer under the comprehensive maintenance services agreement and equipment parts supply chain and services agreement which includes supply and replacement of the spare parts to be taxed at a chargeable applicable rate of 12%, 18%, 28% whichever is much more higher.

AMC’s are also common practice for the maintenance of all the household consumer durables and in some of the cases even the automobiles. Also, some of the companies across the different industries take up the AMC’s for the maintenance of their large set of machinery.

The situation is Particularly Worrying About the Companies that rely on the AMC’s for Maintenance of Their Equipment According to the Report Revealed.

Authority for the Advance Rulings helps the taxpayers ascertain their liability of tax in advance. But the AAR’s of the different states have also given divergent rulings on the GST which is applicable on the AMC’s with some considering them as a ‘Composite Supply’ and some as ‘Works Contracts’.

“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,” said Harpreet Singh, partner at KPMG.

“From a consumer standpoint, the intention behind entering into a maintenance contract is to avail uninterrupted services of any product,” Singh said. “Accordingly, in my view, the correct treatment of an AMC contract is to treat the same as service and tax accordingly.”

In a ruling, Uttar Pradesh AAR had also termed AMC as a ‘composite contract’ that even includes the supply of services and good booth and held It will face GST of around 18%. The principal supply of services and goods is merely incidental to the contract of maintenance.