Service Tax Payable on Reimbursment Expenses under Consulting Engineer Service

[Guest]

Dear Sir,

We have paid Professional/Consultancy charges to an Engineer who is came from out of India (Foreign Engineer) in his consultancy charges invoice there is some amount of Professional Consultancy Charges & some amount of Reimbursement of traveling expenses (traveling expenses & Professional Fees Charges he has mentioned separately in his invoice as per income tax rule Under Sec 195 we have deducted TDS on Professional fees only,

Now service tax liability thereon under “Consulting Engineer Service” my query is that on which amount service tax is payable.

1. Total Invoice amount (including of Reimbursement of Traveling Expenses)
2. Total Consultancy Charges amount

Please guide us in this matter & also let us know which Service Tax rules is applicable.

Regards,

Rahul Patel

[YAGAY andSUN]

Dear Rahul,

The Hon'ble Delh High Court in the matter of Intercontinental Consultants and Technocrats Pvt. Ltd has held that Rule 5(1) of the Service Tax (Determination of Value Rules, 2006), which provides for inclusion of expenditure or costs incurred by the service provider in the taxable value, as ultra vires Section 66 and 67 of the Finance Act, 1994.

While the decision pertains to the period 2002-2007 the ration would also be hold good under the current Negative list regime wherein Section 66B (which has substituted Section 66) has been similarly worded.

Therefore, in the interim, till the matter attains finality, it would be interesting to see whether businesses would take the risk and not charging Service Tax on recovery of expenses going forward.

Regards

Team YAGAY & SUN

(Indirect Tax Consultants)

[Ganeshan Kalyani]

If a foreign technician stays in India and provides technical service exclusively to XYZ company, then who will pay the service tax.

AI Summary

Service tax valuation: reimbursed expenses may be excluded after court struck down expense inclusion rule, causing interim uncertainty. Whether service tax is payable on reimbursements in consulting engineer invoices where professional fees and travel reimbursements are billed separately. A court held the rule mandating inclusion of provider-incurred expenditures in taxable value to be ultra vires, suggesting recovered expenses may be excluded from taxable value; this reasoning is argued to carry over under the negative list regime, creating interim uncertainty about charging service tax on expense recoveries.