11 May 2009
Let, there are 2 firms-A & B. B is collecting some Professional fees from a third party. While the service is provided to that (3rd) party jointly by A & B. Since the 3rd party is paying the bill amount to B only, A is raising bill on B against its own portion of fees. It was previously agreed that 60% of total professional fees collected from the 3rd party will be payable to A inclusive of reimbursement of expenses if any. For the time being A has made some Expenses on behalf of B (such as boarding, lodging,etc.)and the reimbursement of the same is included in that 60% amount. My questions are- i) is the agreement forming any "pure Agent"-principal relationship, if yes-How? ii)If no, should A collect Service tax on the gross amount(i.e.60%)or amount after deducting the actual reimbursement? Please refer applicable Sec./Rule/Notification/Cases if any.
11 May 2009
As I understnad only B is dealing with the third party to whom he would charge the service tax on the gross amount charged.
A in this case is provding the service to B ( assisting him in completing his work) but has no understadnig with the client. Therefore A should charge the ST to A who can avail the credit of the same and pay the balance ot the government. However if A is not covered under ST then A need not charge the ST to B.
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