Companies that provide repair and maintenance services could come under the watch of the service tax department for payment of service tax.

The department has contended that companies which consume goods along with services while providing repair and maintenance services have to factor in the cost of such goods while calculating their service tax liability.

Action by the government against such companies is being considered in light of a clarification issued by the revenue department in March this year, which stated that goods consumed during the provision of service, that are not available for sale, by the service provider would not be entitled to any exemption from service tax.

Official sources said the clarification was issued since there was lack of clarity on whether goods consumed while providing repair and maintenance services were liable to tax.

The revenue department had issued a notification in June 2003 that provided exemption from service tax on the value of goods and material sold, subject to documentary evidence of such sale being available.

According to service tax expert J K Mittal, the government should consider providing an abatement for repair and maintenance services.

He pointed out that the notification issued by the revenue department in 2003 was not relevant since it sought to provide exemption to goods sold, which, in any case, did not attract any service tax.

"Goods sold cannot attract service tax. They will only attract Value Added Tax or sales tax. The government, therefore, sought to exempt something which is not taxable in the first place," he said.