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Service tax - reimbursment

Hemchand Kohli (Accountant) (889 Points)

15 December 2012

Dear Sir, if CA pay ROC fee for filing return of the company using Internet Banking and charge from client in view of Out of Pocket Expenses. Is this liable for service tax, please reply and whether this comes in out of pocket expenses definition.

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CA Pintu Mishra (Chartered Accountant- Industry) (514 Points)
Replied 15 December 2012

Reimbursements are those which are incurred by the service provider in between provision of service to the client and service provider incurs the expenditure when requested by the client. it may be new conditions to the provision of service agreement where service receiver want service to be modified or needs addition in service than which were written earlier in the contract. So when service provider will charge he will charge the gross amount and all will be subject to service tax.

however sometimes service providers have to make payment on behalf of the client so that the provision of service is done in time and would save from any difficulty arising out of if provision had delayed as we can see there is no and specific request by the client in modification in term of provision of service and he is just making payment on his behalf to save the time and do the work in time, here expenditure incurred by service provider is termed as acted as pure agent.

Service tax is liable on re imbursement but not when acted as pure agent.

In your case your ca has acted in good faith as pure agent hence no service tax.

Please refer the given below judgement regarding this.

The CESTAT, South Zonal Bench, Bangalore in the case of Rolex Logistics Pvt. Ltd. Vs. Commissioner Of Service Tax, Bangalore 2009-TIOL-270-CESTAT-BANG held as follows.

“What is a reimbursement? When a service provider provides service to a service receiver or a client, on behalf of his client he incurs various expenditure and these expenditure are all for different purposes. The Service Tax liability in terms of Section 67 is only on the gross amount received towards the services rendered. If the service provider in the course of rendering service has to make certain payments on behalf of the service receiver, they are known as reimbursements. The reimbursements are actually not towards the service rendered but they are only towards other expenditure incurred on behalf of the client by the service provider. Normally, the service provider incurs these expenditures in the interest of quicker service. Suppose the service provider has to first receive the money and then render the service, it would cause lot of delay. Therefore, while providing service to the client, the service provider has to incur various expenditure in order to save time and avoid delay, hence, the expenditure is incurred by the service provider and later these are reimbursed by the client. In fact, the client is supposed to pay all these amounts. For example, take the case of a Custom House Agent in the course of clearance of the goods, the importer may have to incur different expenditures towards the port, stevedoring clearances, stationery, all that. These expenditures are actually to be paid by the importer but the CHA initially incurs all these expenditure and then later collects from the client. These are reimbursements. So what is to be borne in mind is that these reimbursements are not for the services rendered. The gross receipt for the services rendered means only for the services rendered. The amount of money received only for the services rendered not for all the other expenditure which is to be incurred normally by the client.”

The above judgment clearly specifies the reimbursements that can be excluded from the taxable value by citing of the example of CHA who incurs expenses such as port charges, customs duties on importation, demurrage charges payable to the wharf etc., actually payable by the client but incurred on behalf of the latter, which were reimbursed on actual basis, and qualify for abatement from the taxable value of CHA which includes his charges for clearing the goods from the Customs and the above analogy also holds good for ‘pure agent' of the Valuation Rules, as these expenses are not related to the service rendered at all.

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