SERVICE TAX ON REIMBURSEMENT

[Guest]

Dear Sir

Please suggest is case of reimbursement of expenses which is covered under section 67 now under service tax.
In our case we are paying a heavy amount to C&F Agent towards reimbursement expense like freight, rent, telephone charges etc.. out of which some expenses substantiated with bill etc. or some are not.

[CSSANJAY MALHOTRA]

Refer to D.O.F.No.334/5/2015-TRU dated 28.02.2015 (Para 5.2(iv) & same instructions dated 19.05.2015.

Amendment of section 67

‘(a) “consideration” includes– (ii) any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed.

Hence, all reimbursable expenses are liable to Service tax.

 

[ashish chaudhary]

Reimbursement of expenditure made taxable yet concept of Pure Agent is still relevant. Recovery of expenditure satisfying concept of pure agent not liable to tax. Other expenses liable to tax.

[rishi mohan]

Reimbursement of expenses as per amended section 67 are liable to service tax.

[KASTURI SETHI]

Sh.Sanjay Malohtra Ji,

Sir, Do you agree with Sh.Ashish Chaufhary's reply dated 26.5.2015 ?

[CSSANJAY MALHOTRA]

Respected Kasturi ji,

Am in agreement with views of Mr. Ashish if the reimbursement to person acting as "Pure Agent", then the same has to be excluded from the value of taxable service as per Rule 5(2)of Service Tax Valuation Rules.

Definition of Consideration as amended has a phrase "except in such circumstances as may be prescribed", hence reimbursements does not apply to Pure Agent service and rest are taxable.

Rule 5(2) of Valuation Rules under Service Tax :

Subject to the provisions of sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:- (i) the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured (ii) the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service; (iii) the recipient of service is liable to make payment to the third party; (iv) the recipient of service authorises the service provider to make payment on his behalf; (v) the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party; (vi) the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service; (vii) the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and (viii) the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

Explanation1.–For the purposes of sub- rule (2), “pure agent” means a person who– (a) enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service; (b) neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service; (c) does not use such goods or services so procured; and (d) receives only the actual amount incurred to procure such goods or services.

[KASTURI SETHI]

Sh.Sanjay Malhotra Ji,

Sir, I agree with you in toto. Since you did not reply to Sh.Ashish Chaudhary's views dated 26.5.2015, I was taken aback. So I preferred to seek your opinion on this very issue. I did not express but I was thinking on the same lines. It gives me immense pleasure that my view stands confirmed by you.

Thanks a tonne for prompt as well as comprehensive reply. Peerless indeed.

KASTURI SETHI

[CSSANJAY MALHOTRA]

Respected Sh. Kasturi ji,

Thanks for raising & reviewing the same. Had the same not been taken by you, I think may be the users would have taken otherwise.

One thing I learned is better to endorse views as u do so that there should not be any ambiguity in understanding divergent views.

[Ganeshan Kalyani]

With effect from 14.05.2015 the reimbursable expenditure is also become taxable. Several companies engages clearing and forwarding agent who arranges some services on behalf of recipient of service. After amendment many thought that such reimbursement is also taxable. now after your clarification post that doubt has been vanished and backing with the provision of pure agent the service tax liability would be NIL. Thanks for Kasturi Sir and Malhotra Sir for sharing your valuable information.

[KASTURI SETHI]

SH. CS SANJAY MALHOTRA Ji,

Sir, I agree with your views dated 16.1.2016. Otherwise "SILENCE" means acceptance.De facto, you did not differ with Ashish Chaudhary's views and confirmation in detail by you made the subject clearer and dispelled the doubts. I also agree with Sh.Ganesh Kalyani, Sir, that concept of pure agent (C & F Agent) and definition of consideration has become clearer now.

Thanks a lot.

AI Summary

Reimbursement of expenses: generally taxable under amended consideration definition, but excluded when treated as pure agent under valuation rules. Reimbursable expenditures are included in the taxable value of a service under the amended definition of consideration, making such reimbursements generally liable to service tax. However, amounts recovered as a pure agent are excluded from value only if all conditions in Rule 5(2) are met, including recipient liability and authorization, separate invoice disclosure, recovery of actual amounts, and absence of title or use by the service provider.