APPLICABILITY OF SERVICE TAX ON OUT OF POCKET EXPENSES

[SUMEDH AYARE]

ONE OF OUR SERVICE PROVIDER IS A CONSULTANT. HE HAS BOOKED AIR TICKETS ON HIS OWN FOR OUR WORK. HE HAS RAISED A SEPARATE BILL ONLY FOR REIMBURSEMENT OF TICKETS WITH 12.36 SERVICE TAX. WHETHER WE SHOULD PAY SERVICE TAX AFTER CONSIDERING THE RECENT HONOURABLE JUDGEMENT : 'INTERCONTINENTAL CONSULTANTS & TECHNOCRATS PVT. LTD. VS. UNION OF INDIA (2012 (12) TMI 150 - DELHI HIGH COURT)

[YAGAY and SUN]

Though, this judgment is in favour of assessees but revenue department will continue to raise objection on out of pocket expenses.

[SUMEDH AYARE]

WHETHER WE SHOULD PAY SERVICE TAX TO THE CONSULTANT.

[YAGAY and SUN]

Please check the facts of your matter, if such facts are similar to aforesaid judgment, then you should not pay the Service Tax on re-imbursement of expenses.

Further, if payment of Service tax is revenue neutral for you then you can pay it off.

All is dependent on your Risk Appetite.

AI Summary

Service tax on reimbursements: taxable only when payments reflect a service element; assess facts and risk before paying. Whether service tax applies to reimbursement of consultant booked travel depends on whether the payments are genuine pass through disbursements without markup. If documentary evidence shows a principal-agent relationship, segregation of costs, and no service element, the reimbursement is not taxable; revenue may still contest this on facts, so parties should decide based on factual alignment with precedent and their risk appetite or revenue neutrality considerations.