Reimbursement of Transport Charges

[Gurmeet Singh Rohra]

Hi Team,

We have got a reimbursement invoice from our vendor, who is actually supplier of capital items, for transportation charges & vendor has charged us service tax@7%, [email protected]% & [email protected]%.

Along with the reimbursement invoice, vendor has provided us transporters bill as well. Given below is the calculation for your reference:

Transporter Invoice :

Total Charges - ₹ 7981.30 (incl of service tax)

Reimbursement Invoice charged by Vendor:

Reimbursement - ₹ 7981.30

Service Tax@7% - ₹ 558.69

[email protected]% - ₹ 19.95

[email protected]% - ₹ 19.95

Total - ₹ 8580.00

Query:

1. Please confirm whether vendor should charge service tax in this given case

2. If yes, whether the calculation above is correct & whether we have to pay the balance to government treasury under RCM-GTA (Please provide relevant notification / circular)

Regards,

Gurmeet

[Ganeshan Kalyani]

Reimburseable expenditure is brought under service tax net last year. In line with it the vendor has correctly charges service tax. However the percentage of service tax charges is incorrect.

Reverse charge is not applicable to you as you are not the recipient of transport service. Your supplier had availed the service.

[Rajagopalan Ranganathan]

Sir,

According to explanation a (ii) of Section 67 of Finance Act, 1994 " consideration includes 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."

Sub-rule (2) of rule 5 of Service Tax (Determination of Value) Rules, 2006 states that-

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.

Only when the above conditions are satisfies reimbursable expenses need not be included in the gross value of the service provided. Otherwise it is iincludible. The rate of duty adopted by your vendor is not correct it is 15% as on date. However you need not worry about that. It is for the jurisdictional Central Excise Officer to look into it and he will take necessary action to collect service tax short paid by your vendor.

[Ganeshan Kalyani]

Detailed reply in fact.

AI Summary

Reimbursable transport charges taxable unless pure agent - vendor must charge service tax; reverse charge not triggered. Reimbursable transport charges are included in the consideration for a taxable service unless excluded as a pure agent under the Value Determination Rules, which require contractual appointment, separate invoice indication, recovery only of actual third party amounts, no title or use by the service provider, recipient's authorisation and liability, and that such procurements are additional to services provided on the provider's own account. Where the supplier availed the transport service, reverse charge does not apply to the purchaser; tax shortfalls from an incorrect rate are for the tax authority to address.