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.
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.’.
(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.