Reimbursement of expenses paid abroad

[Yatin Bhopi]

Dear expert

We are manufacture and multinational company. We export our products in foreign countries. To sell our products in European countries we required to register our product in certain authorities in Europe.

One of our associate company situated there paid the required registration fees and raised the bill for reimbursement of expenses made on behalf of us.

Please share your views whether Service tax is applicable on this reimbursement expenses under RCM and if payable whether CENVAT credit will be available to us?

[KASTURI SETHI]

Not taxable.

[DR.MARIAPPAN GOVINDARAJAN]

Kasthuri Sir, can I know the logic behind your conclusion?

[MUKUND THAKKAR]

Section 66A of the finance act 1994.provide the discharge of servicetax liability on RCM it further provide that establishments of person in india and outside india shall be treated as separate persons.

[GURURAJA VENKATESH]

I request the readers in this forum to please go through the Tech Mahindra decision reported in 2016(9) TMI 191-CESTAT Mumbai and after reading the same offer your comments on this issue.

Regards,

K.G Subramanian

[Ganeshan Kalyani]

The case law states that the branch of an entity in India is not different. So the money paid by the branch and reimbursed by Head Office is mere reimbursement and hence not taxable under service tax.

[KASTURI SETHI]

Sh.Mariappan Govindarajan Sir,

Reasons and logic behind my reply are as under:-

(1) This service is in relation to exported goods. Exported goods cannot be sold in a foreign country without registration of the same. Goods and service both are related and cannot be separated and both are consumed/enjoyed in a foreign country/non-taxable territory.

2. Registration fee is statutory levy of the foreign country. It is not of commercial nature.

3. All reimbursement expenses are not liable to Service Tax.

4 Everything happened in foreign except reimbursement.

5. Remaining reasons are given by Sh.Ganeshan Kalyani, Sir which are based on the judgement cited.

[Suryanarayana Sathineni]

Dear Friend,

With due respects to the views expressed by our learned friends, I respectfully submit that I have a different view on this issue.

Firstly the issue is reimbursement of the expenses incurred by foreign subsidiary for payment of regulatory fees ( product Registration etc.,) to the government of a particular country with regard to Registration and marketing of the products in that particular country /countries.

As already stated , the subsidiary abroad is treated as a distinct person for the purposes of Service Tax.

any amount paid as fees for such statutory functions, though reimbursed, is liable for ST under reverse charge mechanism more specifically from 1.4.2016 in view of deletion of certain services provided by Government deleted from the negative list.

You may also pl. refer the decision of Mumbai CESTAT reported in TMI under citation 2016 (4) TMI 111 - CESTAT MUMBAI,where the Hon'ble CESTAT held that ST is not payable on the fees paid to US FDA and oather Regulatory Authorities ( this issue related prior to 01.04.2016).

In view of the above, I am of the considered view that the subject expences are liable to ST under Reverse charge Mechanism.

Best Regards

Suryanarayana

[Yatin Bhopi]

Thanks Sir

And also this is registration fees and I think there is no any service involved.

[DR.MARIAPPAN GOVINDARAJAN]

I endorse the views of Shri Suryanarayana

[KASTURI SETHI]

Sh.Yatin Bhopi Ji,

There is no doubt that this activity is service and covered under the category of "Intellectual Property Services" under erstwhile Section 65 (55 b) of the Finance Act which includes intangible and tangible objects.

Further I agree with both experts, namely, Sh.Suryanarayan Sir and Sh.Mariappan Govindarajan, Sir as this is the correct legal position.

However, keeping in view recurring effect, Service and exported product both being enmeshed and consumption of both outside India, the issue is worth raising before the Board through representation.

 

[Ganeshan Kalyani]

This is the right time to make representation. As there are many representation being made for GST. The government would consider this point of contention if raised at this point of time.

[KASTURI SETHI]

Sh.Ganeshan Kalyani Ji,

Yes because this service is chained to exported product. In this context, Board's circulars no.111/5/2009-ST dated 24.2.2009 and 141/10/2011-TRU dated 13.5.2011 which pertain to Pre-RCM period are relevant for raising issue before the Board. These circulars lay emphasis on consumption and enjoyment of service outside India.

AI Summary

Reverse charge on cross border reimbursement of regulatory fees may apply, despite arguments about consumption outside India. Reimbursement of foreign regulatory registration fees is contested: one position treats such reimbursements as non taxable because the services are statutory, consumed outside India, and tied to exported goods; the opposing position treats the foreign associate as a distinct person and contends the reimbursed fees are consideration for services taxable under the Reverse Charge Mechanism, with related debate on CENVAT credit and reliance on tribunal decisions and Board circulars.