Applicability of service tax

[Suhit Aggarwal]

Sometimes companies incurr expenditures for other companies of same group or for its subsidiaries and recover this later on with or without markup. Is service tax applicable on these transactions. If yes, then at what value?

[Guest]

No this is a reimbusemtn of exepses only. Service tax is applicable only when one company has rdered some notified service to other. in that case all the reimbursements will also part of of service bill and subject to service tax. When there is no relation ship of service provider and recipant is there no service tax applicablity is there.

[DEV KUMAR KOTHARI]

Better course is sharing of services for mutual benefit and at reduced overall cost. Direct payment to employes is preferable. In case there are major billing even if for reimbursement, the St can be demanded. It is not necessary that a service provideer should make profit. Please refer to case of RPG Enterprises decided by CESTAT and availabel on this website. RPG rendered services to sister concerns, there it was held that there ws service rpovider and receiver, there can be one or few clients. service received by CESC was taxable. Huge demand for tax an penalty was raised.

AI Summary

Reimbursements for Group Entity Services May Attract Service Tax if Notified Service is Rendered, RPG Enterprises Case Highlights A query was raised about the applicability of service tax on expenditures incurred by companies for their group entities or subsidiaries, which are later reimbursed. One response clarified that service tax applies only if a notified service is rendered, making reimbursements part of the service bill. Without a service provider-recipient relationship, service tax is not applicable. Another response suggested sharing services for mutual benefit and cost reduction, noting that significant reimbursements could attract service tax. A case involving RPG Enterprises was referenced, where services rendered to sister concerns were deemed taxable, leading to a substantial tax demand.