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 .

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