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Note on Service Tax – Retainership of Consultant
The retainership is covered by the ambit of service tax and would be covered under the definition of Management consultant.
Management consultant as defined under the statute
Date of Introduction: 16.10.1998 vide Notification No.53/98-ST dt.07.10.1998.
“Management Consultant” means any person who is engaged in providing any service, either directly or indirectly, in connection with the management of any organization in any manner and includes any person who renders any advice, consultancy or technical assistance, relating to conceptualizing, devising, development, modification, rectification or upgradation of any working system of any organization.
(Section 65(37) of Finance Act, 1994 as amended)
In view of the above definition any service provided by a person in the above descriptive nature will render it taxable
No abatement of any kind is available to this service; any amount received in cash or otherwise would form a part of the taxable amount towards service charges and subject to service tax. The new valuation rules 2006 explicitly denies any abatement (this includes reimbursements of any kind)
Reimbursement has been done away with effect from 18/04/2006 and any amount recovered, as reimbursement will be subject to levy of service tax
Agreement should clearly spell out the service charges to avoid ambiguity from valuation point of view so as not to draw any liabilities at a future stage.
Suggestion for Reimbursement:
For eg: For example, if the consultant hires a vehicle through travel agent for Rs 10,000 and pays Rs 494/- as service tax (@0.40 per cent) to carryout a professional assignment, he ends up paying service tax again on the entire amount of reimbursement sought i.e., while seeking reimbursement of Rs 10,060 from client, he shall have to charge and pay service tax again @12.36% being Rs. 1236/-.
Management consultant is one of the 16 Categories eligible for 100% Cenvat Credit
The views expressed are individual