Reimbursement of electricity bill

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Naveen Kumar (Querist)
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18 October 2012 ABC (P) Limited provides various repairs services to its client. Its also pays their electricity bill (BSES & NDPL) on their behalf and recovers the amount by raising debit notes with NO profit/Mark up element.
Whether service tax will be also recovered from the client. On other service ABC (P) Ltd raise invoice with 12.36% Service tax. Please advice in light of negative list regime. Whether the treatment is okay.

Pradeep Nainawati

Pradeep Nainawati (Expert)
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18 October 2012 Hi Naveen,

ST should be charge on debit note issued to clients in respect to electricity charges.Clause (k) of Section 66D provides that the distribution of electricity by specified agency are only non-taxable.

vishwanatham gandla

vishwanatham gandla (Expert)
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18 October 2012 The basic principle here is that Expenditure (claimed as Reimbursement) has to be established that this does not form part of our Regular Expenditure incurred in rendering the Output Services by Service Provider and will have to proved to the satisfaction of the DEPT that these are paid by service provider to third party only as a matter of convenience to Customers and acting purely as an Agent on Customer’s behalf. And these services for which reimbursements being claimed are in NO WAY helpful/used by ABC in providing service to our Customer and are not generally required/consumed in providing such service( which has to be proved to Dept). Almost all cases of Deparmental Audits in this regard have resulted in raising huge Tax Demands by, and litigations with, the Dept.
There are 13 conditions specified in the law to comply with for being regarded as “ pure agent” and only if all such (difficult to comply with) conditions are complied with, then only expenditure can be claimed from Customers in the form of REIMBURSEMENTs without ST.Hope the matter is clearer.

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Naveen Kumar

Naveen Kumar (Querist)
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19 October 2012 Service has been defined in clause (44) of the new section 65B and means -

any activity
for consideration
carried out by a person for another
and includes a declared service.

But here there is no consideration. It just for the convenience for the client.

Some suggest, ABC (P) Limited should refrain from making payments on its client behalf or charge Service Tax on reimbursement.

Naveen Kumar

Naveen Kumar (Querist)
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