Is S.T. applicable on Debit notes raised by Co. A on other 2 companies of such group 4 such sharing?

[Sanjeev Sharma]

In X Group of companies, there are three companies. In one co.A of the said group, there is one employee who is IT/EDP Manager. This employee look after the IT needs of all three companies. His salary cost is shared by other two companies also in a pre agreed ratio.They have a MOU for this purpose and also for sharing other common costs like travel, conveyance etc. Is service tax applicable on Debit notes raised by Co. A on other two companies for such sharing ? Is TDS also applicable on this ??

[Surender Gupta]

In a view, Service Tax is payable as well as TDS is also deductible on the impugned activity. Though this issue is controversial one, but after the decision in the matter of RPG Enterprises Ltd. by the CESTAT [2008 TMI - 30816 - CESTAT MUMBAI], you need to pay service tax this activity.

This is Manpower Supply Services, hence ST is payable.

AI Summary

Service tax on intercompany cost sharing: recharges for shared employee services attract tax and withholding obligations.
Service tax applies to intercompany recharges where Company A recovers salary and common costs from sister companies under a pre agreed MOU; such recharges are treated as taxable supply of services (manpower/employee related) rather than mere reimbursements. Concurrently, the debited amounts are subject to deduction of tax at source, reflecting the view that these payments constitute taxable service payments rather than internal non withholdable allocations.