Applicability of Service tax on reimbusements of expenses

[Asked by Guest]

whether reimbusements of expenses is taxable under service tax upto 31-03-2006?

[Surender Gupta]

Actual reimbursement of expenses which are evidentary from the facts and circumstances are not liable to service tax.

The view expressed by one expert is as under:- If reimbursement of expenses is part of service, then service tax will be payable even on Rs 2,500. However, no service tax if the expenses were for material, since the tax is ony on value of services. What is the correct position?

[Surender Gupta]

Reimbursement of expenses and cost of material are two distinct items and must be discussed accordingly. No value should be artificially bifurcated to claim the benefit of reimbursement of expenses. Only actual expenses which have been incurred on behalf of service receiver shall be out of service tax.

AI Summary

Service tax on reimbursements: only genuine out-of-pocket expenses for a client escape tax; bundled reimbursements taxable.
Actual out of pocket expenses incurred on behalf of the service recipient and evidenced by facts and circumstances are not liable to service tax, whereas amounts treated as part of service consideration are taxable; reimbursements for materials are distinct and generally excluded from service tax, and values should not be artificially bifurcated to avoid tax.