CA. M. Lakshmanan

In the budget Explanation (a) to Section 67 is amended to specifically include ‘any reimbursable expenditure or cost incurred and charged by the service provider’ in the definition of the term ‘Consideration’ in order to overcome the Delhi High Court’s ruling in the case of Intercontinental Consultants and Technocrats Private Limited vs. Union of India wherein it was held that the reimbursements will not be liable to service tax in the absence of specific provision for valuation under section 67 of the Act.

This will create great hardship to all concerned, especially for professionals, because in the absence of the service receiver willing to pay service tax on the expenses reimbursed the service provider may not be able to bear the extra 14% proposed. How is that the government proposes to treat the ‘EXPENSES INCURRED’ specifically for the purpose as ‘TAXABLE SERVICE”? Even before the amendment the service tax authorities are taxing the expenses reimbursed on the footing that the service provider is not a sole agent of service receiver and that is why the disputes have gone up to High Court.

As far as Chartered Accountants are concerned Banks are reluctant to bear the Service tax on expenses reimbursable and it will be an additional burden for Chartered Accountants to bear 14% extra for every rupee spent. Let us hope that a second thought will be given for the proposed amendment after thorough discussion and opinions can be sought from all stake holders before final decision is taken.

Relevant Extract of The Finance Bill 2015 (BILL No. 26 OF 2015)

Amendment of section 67.

109. In section 67 of the 1994 Act, in the Explanation, for clause (a), the following clause shall be substituted, namely:—

‘(a) “consideration” includes–

(i) any amount that is payable for the taxable services provided or to be provided;

(ii) any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed;

(iii) any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket.’.

Relevant Extract from D.O. Letter from JS(TRU-II)F. No. 334/5/2015-TRU- D.O.F. No. 334/5/2015-TRU,   dated February 28th, 2015

(iv) Section 67 prescribes for the valuation of taxable services. It is being prescribed specifically in this section that consideration for a taxable service shall include:

(a) all reimbursable expenditure or cost incurred and charged by the service provider. The intention has always been to include reimbursable expenditure in the value of taxable service. However, in some cases courts have taken a contrary view. Therefore, the intention of legislature is being stated specifically in section 67.

(b) amount retained by the distributor or selling agent of lottery from gross sale amount of lottery ticket, or, as the case may be, the discount received, that is the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such tickets.

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2 responses to “Budget 2015- Service Tax Payable on Reimbursement of Expenses”

  1. Kamal Das says:

    Sir, Shall we pay service tax on a certain provision expense ?

  2. SACHHINDRANATH N. SHINDE says:

    ANY LIMIT FOR LOADING & UNLOADING CASH REIMBURSEMENT FOR F.Y.2015-16 UNDER TAXATION

  3. Arup kr ghosh says:

    i am a service provider of rental income, i have charges a separate electricity bill to tenant,may i charges service tax on electricity expenses

  4. sky says:

    shipping business are charge to service tax are applicable to reimbursement bills
    yes or no

  5. sky says:

    shipping business are applicable to service tax charge in reimbursement bills

  6. Trikam panchal says:

    we are a public limted co and we had deduct service tax on reimbursement of exp.for conveyance can we charge?

  7. H Sengupta says:

    Sir,

    A housing complex is having maintenance charges in two components, (1) – fixed monthly maintenance charges and (2) a variable cost at actuals against electricity consumption of common areas, diesel, AMCs, repairs, etc. In this case is the service tax applicable on the variable cost?

  8. Swati says:

    If a service provider provides a service at a discount then service tax shall be charged on the discounted price or full price.

  9. vinayak says:

    We are a service provider collecting air freight expenses from the client and paying to the Clearing & Forwarding agent, does service tax of 14% apply on the air freight, which is actually reimbursement of expense for us.

  10. Amruta says:

    Sir,
    Suppose ca incurs some expense on behalf of client as a pure agent.so ca pays sr tax on acomodation hired by him fr auditing.now sr tax levied thereon vil form part of d cost of accomodation vil can b collected in invoice from client so y d ca vil b reluctant to expend?????

  11. Dinesh K Nagpal says:

    Dear Sir,
    We have recently taken an office on rent in Gurgaon. Our landlord pays the electricity bill to the Haryana Electricity Board and we pay our share based on our consumption.
    We have been informed by our landlord that we have to pay additional 14% towards service tax with this payment of our share of electricity bill to him.
    Please advise us in this regard.
    Thanks and regards

  12. BALAI KUMAR MUKHERJEE says:

    PLS. ANSWER all the above querries as shown above

  13. Fanindra Kumar Mohapatra says:

    Sir,

    We are a security service provider for a PSU. In letter of intent issued by the said PSU , bifurcation towards cost of security services & reimbursement expenses like fuel, mobile for engaging vehicle for patrolling purposes are also given. When we bill them for all like engaging security & reimbursement expenses every month along with service tax on total services including reimbursable expenses, they just deduct the ST on reimbursement citing the provision in LOI ( ST not applicable on reimbursable amount). Understand that the provision of ST on reimbursable expenses is chargeable as per the amended finance bill FY.2015-16.

    Would request you to clarify.

    Regards,

    Fanindra

  14. gyanendra says:

    Dear sir,

    Please confirm that service tax registered organisation should claim service tax input on there expenses which is charge by service provider ????

  15. satish says:

    dear sair
    iam running cyber cafe , i pay fee for govt compettion UPSC, SSC , and admission in ca college ipcc and etc . on behalf of student from my account . is it comes under service tax

    • Nikunj Shah says:

      any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed;

      What are the exceptional circumstances where service tax is not to be charged on reimbursements?

  16. Sunil says:

    we are in distributorship & register under partnership firm in such case of expenses incurred on behalf of our principle & reimbursed should we collect service tax from our principal & need to pay to service tax department please suggest.

  17. Vivekanand says:

    Sir,

    Extract of provision of valuation under sec 67:
    •Consideration includes reimbursible expenditure or cost incurred by service provider and charged(except where conditions of ‘pure Agent’ are satisfied).

    If any person is charging same amount of expenditure actually reimbursed like electricity bills of land lord by tenant, service tax shouldn’t be applicable on reibursement.

    Is my understanding is correct? Kindly guide.

    Thank you

    • S.Mukherjee says:

      We have received service from a company and they have charged us reimbursement of Railway fare (where service tax element is included). They are asking for service tax on the total railway fare. Is it justified

  18. Priya says:

    Hello Madam,

    Our co. partnership firm, personal medical bill service tax should i take for service tax set off for Fir,

    Kindly confirm

  19. BIRENDER BISHT says:

    Hi , I have a question since I am struggling with Service tax .
    I work for a UK base client ,
    1- I get a fixed monthly amount as remittance on which I pay service tax.
    2-I also get monthly reimbursement amount against the expenses incurred on the bill submitted , now I have been asked to pay service tax on this amount too , where as when I book expenses I pay the service tax included in the bills like – Air tickets , hotel and transportation … which means I pay twice service tax in the case .

    pls help to advise the correct procedure of service tax .

  20. Prakash says:

    Sir,
    We are an event company we organise our contract with customer is for professional service which we provide and reimbursement of expenses which we incur for our clients like travelling arrangements organising of events site visits etc. Previsously we use to pay service tax on our professional fee. Now it is not clear whether we continue doing that or we have to pay servive tax on reimbuirsment part as well. Pls let me have a considered view on this.

  21. Abha Sharma says:

    Thanks Sir, above article of yours was very helpful.

  22. PARAS says:

    sir, we are clearing and forwarding agent….where we have to charge s tax to party its lot of confusion….example. shipping line charges us freight + terminal handling + bill of lading…they take s tax on terminal handling and bill of lading….we follow same thing….but in freight we add profit but considering reimbursement…..should we charges stax on freight…if yes then on our profit or on total freight. please help us on said matter.

  23. Rajnish Kumar says:

    Credit card company is paying for my purchases and services like electricity, phone bills etc.

    Will Banks start charging 14% ST on the so called “Reimburement” of expenses…. recd today a bill with 14% ST on expenses made in June.

  24. Naveen says:

    Sir

    A PSU(A) is giving its part of building to another PSU(B) on rental basis. A is also charging the proportionate security service expenses and housekeeping expenses which were incurred for the entire building. Is it necessary here to charge service tax on reimbursement of the respective expenses?
    If so, from when this provision would be applicable?

  25. Debashis Modak says:

    Sir,

    The invoice of port charges is charged with service tax. We submit to customers for reimbursement.Kindly advise whether again service tax to be added on the port bill which is already service tax included.

  26. Mandar Keskar says:

    The manufacturer raises an excise invoice with the sale price of goods and a separate charge for the freight amount claimed as reimbursement of actual transportation cost. The manufacturer charges excise duty on the sales price of goods and no excise duty is levied on the freight amount charged separately on the invoice. For local sale in Maharashtra VAT is charged on Freight amount. Whether we need to charge Service Tax on Freight amount as per the budget under rule 67?

  27. ANIL NADUVIL says:

    Sir,
    I am a Clearing and Forwarding Agent
    We pay in advance shipping companies and CFS their charges (WHICH ARE BILLED WITH SERVICE TAX )
    Now when I bill my client should I again charge service tax on the said amount
    Kindly clarify
    Thanks

  28. Deepak Oza says:

    Sir,
    From which date service tax is applicable on reimbursement ?

  29. CA Anurag says:

    Dear Sir, Thanks for sharing your wonderful write up. In this regard I have a question. Does the words “circumstances, and subject to such conditions, as may be prescribed” mentioned in the amendment in sec 67 means the provision of “SERVICE TAX (DETERMINATION OF VALUE) RULES, 2006” commonly know as “Pure Agent” expenses which are not included in the taxable services provided the conditions are fulfilled?
    I would be obliged to have your wise views.
    regards

  30. Sailesh Sai says:

    Sir

    Can you clarify me about those “circumstances, and subject to such conditions, as may be prescribed” mentioned in definition of Consideration.

  31. P. K. Keshry says:

    R/Sir,

    I am Govt. servent and got salary about 6.50 lac per year and medical expances of my is about 5.0 to 6.0 lac per year (My wife is dialysis patient). In that condition how can possible to pay income tax about 40000 to 50000 per year . If you have some suggetion to save tax under any act of income tax rule.So please send me.

    Thanking you Sir

  32. Manish says:

    Pure Agent Expenses. I’m sure nothing big will come out of the explanation, oversmart move doesnt stand a chance.

  33. Ganesh Negi says:

    clearing & forwarding agent paying transport charges and loading /7 unloading charges and get reimbursement from party, is it taxable or exempted.

  34. CA. M. Lakshmanan says:

    Medical and fuel bills reimbursed by employer to employee are not coming under this. They are to be dealt under income from salary – whether exempt or taxable as perquisite depends upon limit, eligibility etc., There is no question of service tax.

  35. hitesh k c says:

    This modi govt will prove disaster for business community. This govt has got tons of money by way of spectrum auction ,reduction in international petrol prices,coal auction, jan dhan scheme etc still this govt and all state govts are increasing various types of taxes and duties year on year. Sec 50C of IT Act also needs reconsideration

  36. CA. M. Lakshmanan says:

    These are reimbursement of travel and other out of pocket expenses incurred and there is no reverse mechanism for this; service receiver has to pay service tax to the service provider on the expenses incurred and if it is not paid the service provider has to bear it.

  37. vikas says:

    pl confirm whether the reimbursement of medical / fuel bill from employer also comes under service tax….

  38. RAJINDER KUMAR says:

    Dear Sir

    please provide type of reimbursement and its any part of revers manchasium

  39. vishwanath poojari says:

    sir

    what if clients are not paying service tax on reimbursements?

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