Service tax on event charges - reimbursement

[SARAVANAN RENGACHARY]

We are participating in a exhibition which will be held in India. Exhibition charges will be paid by us to the event running company along with applicable taxes. Since we are distributors, we will be displaying the products of OEM manufacturers.

OEM manufacturer who is in India is willing to reimburse 50% of event participating cost to us.

please let us know whether this reimbursement attract Service Tax ?.

Regards

saravanan.

[Akash Deep]

Dear Sir,

NO liability of service tax on reimbursement amount. please do not charge any thing more than you have expensed. if you include you markup while claiming reimbursement from manufacturers story would be different. among several reasons i will give you the most valid reason that as the service tax has already been charged and paid on amount which you are seeking from manufacturers as reimbursement. NO amount can be twice.

Regards

Akash Deep

[SARAVANAN RENGACHARY]

Dear Akash,

thanks for the reply.

I am trying to take the shelter in valuation rules (5). There is no support as we are not pure agent.

How do you say that Reimbursement is not taxable beyond valuation rules (5).

regards

saravanan.

[Akash Deep]

Dear Sir,

you should not tart with valuation rules, the purpose of valuation rule sis to give a procedure as to how to calculate the value of a taxable service subject to section 67 of the finance act, 1994. first you should determine whether a particualr activity amount to provision of service.

In your case exhibitor must have raised an invoice in your name and collected from you the cost of services plus service tax plus SBC. your manufacturer from whom you are seeking reimbursement i must be asking for the invoice raised by the exhibitor and on the basis of invoice only he will be assured that you have incurred expenditure equal to the value indicated i the invoices. he will not give you more than the amount indicated in the invoices.

you have not done activity for the manufacturer. only thing happened between you and manufacturer is the agreement that he will reimburse the expenses incurred by you during the exhibition. as per section 67 consideration for service make the taxable value of service. and consideration is something which service receiver gives to service provider against provision of service. now to treat the reimbursement as consideration you must have provide any service to the manufacturer which is not the case here, you not provide any service to the manufacturer, as there is no provision of services. no service tax.

Regards

Akash Deep

[KASTURI SETHI]

In this case, suppose OEM manufacturer is 'A' . Distributor is 'B' and 'Event Running Company is 'C'. In the exhibition to be organised by C, B would display the goods (manufactured by A) on behalf of A for which B would pay exhibition charges to A (including applicable taxes). Thereafter, A would reimburse 50% of the exhibition cost to B. This can be termed as taxable service provided under the category of erstwhile BAS specified under Section 65 (105)(zzb) (Explanation (a)) (Now under the category of 'Other Than Negative List').

Now as rightly advised by Sh.Akash Deep, if B recovers the amount of the exhibition cost whatever he has paid to C (i.e. notmore than he paid to C in any situation) from A, there would be no consideration. In other words, service would be provided without any consideration. Hence no service tax chargeable.

Thus the question of payment of Service Tax on the amount to be reimbursed or resorting to Section 67 read with Rule 5 of Valuations Rules does not arise.

In this way I endorse the views of Sh.Akash Deep.

 

[Akash Deep]

thanks kasturi sir

[Ganeshan Kalyani]

Healthy discussion by the experts on the subject. It enriched my knowledge. Thanks to all the experts in this issue ID.

AI Summary

Reimbursement of event charges not taxable where expense recovery lacks consideration and is supported by invoices.
Reimbursement of exhibition charges paid by a distributor is not service-taxable where the distributor is merely reimbursed by the OEM for expenses evidenced by invoices and does not provide services or retain a markup; valuation rules do not apply unless the distributor undertakes a taxable activity or claims amounts beyond actual expenses, in which case the reimbursement may constitute consideration and attract tax.