Reimbursement Expenses - Whether it is tax on Services?

The answers to the Illustrations are as under:

In illustrations 1, 2 and 4, it appears that “A” has incurred expenses as a ‘pure agent’ of “B”, and therefore, such expenses are not includible in the value of service, in view of Rule 5(2) of Service Tax (Determination of Value) Rules, 2006. If so, this would be covered under the words “… except in such circumstances, and subject to such conditions, as may be prescribed;” as mentioned in the proposed amendment to Section 67.

In illustration 3, services availed by “A” are in nature of input service [if not covered in the exclusions given under rule 2(l)], used for providing his output service. So, “A” has to include such expenses in the assessable value and pay service tax on it. However, “A” can take Cenvat credit of service tax paid on such input services, subject to observance of CCR, 2004. When Cenvat credit is available to “A”, there would not be double taxation.

In illustration 5, service tax is not payable not value of parts. “A” may show value of parts separately in the Invoices and pay service tax at full rate of value of service. If it is a ‘works contract’ and value of parts has not been determined separately, “A” can pay service tax on 70% of value (inclusive of value of parts) under Rule 2A (ii)(B) of the Service Tax (Determination of Value) Rules, 2006.

The views expressed are personal views.

Shvetal Parikh 18/03/2015