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Reimbursement of electricity

Naveen Kumar (Chartered Accountant) (60 Points)

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 services provided to client (self + outsourced to others), ABC (P) Ltd raise invoice with a mark up + 12.36% Service tax.

Please advice in light of negative list regime.

Whether the treatment is okay.

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5 Replies

ANJALI NEGI (Chartered Accountant) (1263 Points)
Replied 18 October 2012

Yes, Service tax will also recovered from the client as it was paid by the company on behalf of client .

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vaibhav (student) (253 Points)
Replied 18 October 2012

Negative List of services, listed under Section 66D of the Finance Act, 1994 defines an 'electricity transmission or distribution utility'. It includes the following -

• the Central Electricity Authority

• a State Electricity Board

• the Central Transmission Utility (CTU)

• a State Transmission Utility (STU) notified under the Electricity Act, 2003 (36 of 2003)

• a distribution or transmission licensee licensed under the said Act

• any other entity entrusted with such function by the Central or State Government

Here, service provided by ABC ltd not come under the above exception and hence here ABC ltd should raise bill including service tax amount. Yes. your treat is okay.

Naveen Kumar (Chartered Accountant) (60 Points)
Replied 18 October 2012

But there is no consideration.

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

Does - It will make any change - as there is no consideration.

CA Sourabh Goenka (Chartered Accountant) (249 Points)
Replied 18 October 2012

no question of service tax, clearly transaction comes under defination of pure agent. see the rule of pure agent and compliance it. No question at all for service tax..

Pradeep Nainawati (ACA) (496 Points)
Replied 19 October 2012

Hi All,

Kindly refer to extract of Rule 5 of Valuation rule. Extract of same is reproduced below.

If the electricity connection is in the name of ABC (P) Ltd clients name then this transaction will come under the concept of Pure Agent.

If the connection is in the name of ABC (P) Ltd then it will not cover under the concept of Pure Agent as the liability to pay electricity bill is on the ABC (P) Ltd and ABC (P) Ltd will have to pay even if the tenant refuse to pay.

(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:-

(i) 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;

(ii) 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;

(iii) the recipient of service is liable to make payment to the third party;

(iv) the recipient of service authorises the service provider to make payment on his behalf;

(v) 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;

(vi) 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;

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

(viii) 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.

Explanation1.–For the purposes of sub- rule (2), “pure agent” means a person who–

(a) 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;

(b) 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;

(c) does not use such goods or services so procured; and

(d) receives only the actual amount incurred to procure such goods or services.

Explanation2.– 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.