12 February 2010
We have a client who has a 'Pass through and monitoring assignment agency'. It has received a assignment from the government of India. In this, the company will recieve funds from the Government to pass on to computer teaching institutes to teach to the backward areas of some places. It is a long project and a continous one. Also, Government will be paying the company 1.5% of the gross amount charged (disbursed to Computer training institutes) as professional fees.
In this i have a doubt regarding the: 1) the head of service tax: will it be business auxillary services' 2) Also, the service tax will be levied on the gross amount charged or only on the 1.5% ie professional fees.
13 February 2010
Yes, the proposed transaction can be covered under Business Auxiliary Services.
As regards to valuation of service for the purpose of service tax. You attention is invited to Rule 5(2) of the "Service Tax (Determination of Value) Rules, 2006. As per rule 5(2), the expenditure or cost incurred by the service provider as a pure agent of the receipent of service, shall be excluded from the value of taxable service subject to fulfillment of perscribed conditions.
Hence, you are liable to pay service tax on professional fee only.
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