Service Tax on reimbursement of exp.

[RAM SHARMA]

Dear Expert,

As a  Consignee Agent i am doing  sale of consignment goods on commission basis. Our income is  commision from sale. In spite of that we are reimburse transporation exp. and local handling/other charges from the company. would we include local handling and reimburesement exp in our gross income to assess the service tax liability.

Our income from commission is nine lacs and reimburse expenses is two lacs. Pl suggest.

Thanks

[megha agarwal]

Dear Mr. Sharma,

Section 67 of the Finance Act, 1994 authorizes the determination of the value of the taxable service for the purpose of charging service tax under Section 66/66B as the gross amount charged by the service provider for such service provided or to be provided by him, in a case where the consideration for the service is money. It is only the value of such service that can be brought to charge and nothing more. The quantification of the value of the service can therefore never exceed the gross amount charged by the service provider for the service provided by him.
Further, Rule 5(1) of the Rules, in as much as it provides that all expenditure or costs incurred by the service provider in the course of providing the taxable service shall be treated as consideration for the taxable service and shall be included in the value for the purpose of charging service tax goes beyond the mandate of Section 67 merits acceptance.
Moreover, it has been validly upheld by the Hon’ble Delhi High Court in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. Vs. Union of India & ANR (2012 (12) TMI 150 - DELHI HIGH COURT) that reimbursement of expenses shall not be liable to service tax. Hence, reimbursed expenses of Rs. two lakhs as above shall not be liable to service tax.

Regards,

Megha Agarwal

AI Summary

Service tax on reimbursements denies taxability of genuine expense reimbursements, while commission receipts remain taxable. Reimbursed payments for transportation, local handling and similar disbursements are separate from commission and, when they are bona fide pass through expenses, should not be included in the value of the taxable service. The valuation provision confines taxable value to the gross amount charged by the provider; any rule treating all incurred costs as additional consideration goes beyond that provision. Commission income, however, constitutes the taxable receipt.