Punjab Revenue Authority (PRA) has issued instructions to companies providing services to exploration and production (E&P) companies regarding taxability of consumption of material and sales tax on services under the provincial sales tax laws.
It is learnt that the PRA has ruled that a service shall remain and continue to be treated as service regardless whether or not rendering thereof involves any use/supply/disposition/consumption of any goods and service provider companies are called upon not to split their invoices who are required to charge, collect & pay Punjab Sales Tax on the gross value of services provided to E&P companies.
In this regard, the PRA has issued instructions to E&P service provider companies regarding taxability of consumption of material and sales tax on services under the provincial sales tax laws and directed that services involving any consumption of products shall not be separately charged to sales tax.
When contacted a tax expert told Business Recorder that in case of contractors/service providers of E&P companies wherein services like cementation, coil tubing etc have been provided by the service providers with inevitable utilisation of chemicals, products etc, instead of provisions of Sales Tax Act, 1990 relevant law on the issue shall be tax on services chargeable under the relevant provincial legislations like Punjab Sales Tax on Services Act, 2012. There is no concept of "Split Supplies". Supply is either service in totality or not. If it is not a supply of goods, then it is service.
PRA instructions states, "it has been brought into the knowledge of PRA that certain service providers/contractors providing services in respect of mining of minerals, oil and gas including related surveys and allied activities are artificially splitting invoices into services and goods parts under a misconception. It is, therefore, imperative to clarify that a service remains and continues to be treated as service regardless whether or not rendering thereof involves any use supply disposition or consumption of any goods either as an essential or as an incidental aspect of such rendering.
For the purpose of determining the tax liability the value of the taxable service is to be the gross amount of consideration received by the service provider from the recipient of service (section 7 of the Punjab Sales Tax on Services Act, 2012) In other words the provision or consumption of goods under a taxable service does not change the overall character of the service contract. The term 'service' has been comprehensively defined in section 2(38) of the Act, 2012 ibid along with an explanation, PRA stated.
The service provider companies are therefore, called upon not to split their invoices issued to E & P companies into artificial parts issued under a particular service contract. They are required to charge, collect and pay Punjab sales tax on the gross value of the taxable services provided to E&P companies: PRA directions added.