Applicability of Cenvat and Service Tax on Rental Income

This query is : Resolved

Yogesh Rathee (Querist)
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20 August 2007 Dear Sir,

as all of us know that rental services are came under the provisions of service tax.

My query is that what happened if any assessee already raised the bill of rent to their client and registration of service tax comes after that billing.

can the assessee he liable for service tax on those bills that he had already raised. if yes then can he take cenvat of the bills raised on him during that period.

the second problem is that the assessee is under the obligation of paying some expenses to the service tax provider and he is entered an agreement for rembuirshment of the same from second party but he required to raise a bill for the same. in this case the second party had the obligation to pay only the amount of the bill of services or expenses as raised by the service provider. so what is the formalities on the part of the assessee in this matter as he is only the mediator and had not made any addittion. so can he is also required to raise the bill and mentioned the service tax seperate on the value including service tax or only on the value of the expenses.

so please let me know the possible way out of the same.

Thanks & Regards

Yogesh Rathee

Yogesh Rathee (Querist)
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20 August 2007 its urgent

Jitender

Jitender (Expert)
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21 August 2007 yes assessee is liable to pay service tax on & after 1 june irrespective of the fact that he has collected it or not.

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Late CA Sampat Jain

Late CA Sampat Jain (Expert)
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21 August 2007 Your service tax liability is not dependent on registration or raising of bill . The liablity arises as soon as the taxable service is provided . However the payment of service tax is on collection basis. As such even if you have not charged any service tax in the bill or you are not registered , if you have provided taxable service you are liable.

The service tax is chargeable on gross amount . Reimbursements can be excluded only if certain conditions are fulfilled.
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The rules for Inclusion in or exclusion from value of certain expenditure or costs are as follows:---

(1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service.

(2) Subject to the provisions of sub-rule (1), the expenditure or costs incurred by the service provider as a pure agent of the recipient of service, shall be excluded from the value of the taxable service if all the following conditions are satisfied, namely:

œ the service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services procured;

œ the recipient of service receives and uses the goods or services so procured by the service provider in his capacity as pure agent of the recipient of service;

œ the recipient of service is liable to make payment to the third party;

œ the recipient of service authorises the service provider to make payment on his behalf;

œ the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;

œ the payment made by the service provider on behalf of the recipient of service has been separately indicated in the invoice issued by the service provider to the recipient of service;

œ the service provider recovers from the recipient of service only such amount as has been paid by him to the third party; and

œ the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

Explanation 1 : For the purposes of sub- rule (2), "pure agent" means a person who

œ enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service;

œ neither intends to hold nor holds any title to the goods or services so procured or provided as pure agent of the recipient of service;

œ does not use such goods or services so procured; and

œ receives only the actual amount incurred to procure such goods or services.

Explanation 2 : For the removal of doubts it is clarified that the value of the taxable service is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration is indicated separately in the invoice.

Illustration 1 : X contracts with Y, a real estate agent to sell his house and thereupon Y gives an advertisement in television. Y billed X including charges for Television advertisement and paid service tax on the total consideration billed. In such a case, consideration for the service provided is what X pays to Y. Y does not act as an agent behalf of X when obtaining the television advertisement even if the cost of television advertisement is mentioned separately in the invoice issued by X. Advertising service is an input service for the estate agent in order to enable or facilitate him to perform his services as an estate agent

Illustration 2 : In the course of providing a taxable service, a service provider incurs costs such as traveling expenses, postage, telephone, etc., and may indicate these items separately on the invoice issued to the recipient of service. In such a case, the service provider is not acting as an agent of the recipient of service but procures such inputs or input service on his own account for providing the taxable service. Such expenses do not become reimbursable expenditure merely because they are indicated separately in the invoice issued by the service provider to the recipient of service.

Illustration 3 : A contracts with B, an architect for building a house. During the course of providing the taxable service, B incurs expenses such as telephone charges, air travel tickets, hotel accommodation, etc., to enable him to effectively perform the provision of services to A. In such a case, in whatever form B recovers such expenditure from A, whether as a separately itemised expense or as part of an inclusive overall fee, service tax is payable on the total amount charged by B. Value of the taxable service for charging service tax is what A pays to B.

Illustration 4 : Company X provides a taxable service of rent-a-cab by providing chauffeur-driven cars for overseas visitors. The chauffeur is given a lump sum amount to cover his food and overnight accommodation and any other incidental expenses such as parking fees by the Company X during the tour. At the end of the tour, the chauffeur returns the balance of the amount with a statement of his expenses and the relevant bills. Company X charges these amounts from the recipients of service. The cost incurred by the chauffeur and billed to the recipient of service constitutes part of gross amount charged for the provision of services by the company X.

Munish K Sharma

Munish K Sharma (Expert)
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21 August 2007 Yes assessee is liable to pay service tax in case his receipts are above threshhold exemption. Rest your query is not very clearly framed.