Service Tax on reimbursement

This query is : Resolved

Hemal Parikh (Querist)
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08 July 2008 Hello,

One of my client is an CNF agent. He does the selling on behalf of companies. He get all the expenses reimbursed from the company. He additionally charged commission to the company.

Want to confirm whether we should charged service tax on reimbursement? Please provide the circular if any.

Also to let you know that we charged the service on commission.

Please let me know ASAP.

Thanks,
Hemal Parikh

CA. Vineet Grover

CA. Vineet Grover (Expert)
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08 July 2008 Dear Hemal,

There is no service tax on re-imbursements as there is no services involved in the re-imbursements.

Further proper supportings in need to be attached for claiming re-imbursements else it shall be treated as a fee and thus service tax / TDS both shall become applicable.

Rgds/
Vineet

CA Anand Sarda

CA Anand Sarda (Expert)
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08 July 2008 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, if
the expenditure or costs are reimbursed by
the Service recipient.
Ø The value of the taxable service will not
include the expenditure or costs incurred by
the service provider as a pure agent of the
recipient of service only if all the following
conditions are satisfied:
l The service provider acts as a pure
agent of the recipient of service whenhe makes payment to third party for
the goods or services procured;
l 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;
l The recipient of service is liable to make
payment to the third party;
l The recipient of service authorises the
service provider to make payment on
his behalf;
l 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;
l 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;
l The service provider recovers from the
recipient of service only such amount
as has been paid by him to the third
party; and
l The goods or services procured by the
service provider from the third party as
a pure agent of the recipient of serviceare in addition to the services he provides
on his own account.

Any person is to be called as a
‘Pure Agent’ only if there is an
agreement between the agent and
the service recipient. There shall be
an authorization to incur expenditure
or costs in the course of providing
taxable service by virtue of the
contractual agreement. He should
neither intend to hold nor hold any
title to the goods or services so
procured or provided in his capacity
as pure agent of the recipient of
service; and he should not use such
goods or services so procured

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