one of clients is a c & f agent. he has regularly been paying service tax on his commission income.
however he manages his office by way of making various payments for rent, telephone bill, staff salaries etc. the system is such that only after he submits proof of payment is original is he reimbursed for the same by his principals.
now the department has issued show cause notice to him directing him to pay service tax on such reimbursement also
would anyone have a case or a clear opinion on the same?
alpa
Reimbursement of expense ordinarily refer to such expenses that were incurred on behalf of the client. For example, when an octroi agent pays octroi and later seeks its reimbursement from the client, it is evident that the agent was not liable to pay the octroi. He discharged liability of his client. The expense was a kind of temporary loan to the client.
However, the same octroi agent can’t claim reimbursement of his office rent. Paying rent is a business expense of the agent. He does not pay the rent on behalf of his client. The client is under no obligation to pay it.
Rent, telephone bill, staff salaries etc. are business expense of your client. These are not spent on behalf of somebody. There is no question of seeking reimbursement.
CAclubindia
