Reimbursement of electricity bill

This query is : Resolved

Naveen Kumar (Querist)
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18 October 2012 ABC (P) Limited provides various repairs services to its client. Its also pays their electricity bill (BSES & NDPL) on their behalf and recovers the amount by raising debit notes with NO profit/Mark up element.
Whether service tax will be also recovered from the client. On other service ABC (P) Ltd raise invoice with 12.36% Service tax. Please advice in light of negative list regime. Whether the treatment is okay.

Pradeep Nainawati

Pradeep Nainawati (Expert)
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18 October 2012 Hi Naveen,

ST should be charge on debit note issued to clients in respect to electricity charges.Clause (k) of Section 66D provides that the distribution of electricity by specified agency are only non-taxable.

vishwanatham gandla

vishwanatham gandla (Expert)
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18 October 2012 The basic principle here is that Expenditure (claimed as Reimbursement) has to be established that this does not form part of our Regular Expenditure incurred in rendering the Output Services by Service Provider and will have to proved to the satisfaction of the DEPT that these are paid by service provider to third party only as a matter of convenience to Customers and acting purely as an Agent on Customer’s behalf. And these services for which reimbursements being claimed are in NO WAY helpful/used by ABC in providing service to our Customer and are not generally required/consumed in providing such service( which has to be proved to Dept). Almost all cases of Deparmental Audits in this regard have resulted in raising huge Tax Demands by, and litigations with, the Dept.
There are 13 conditions specified in the law to comply with for being regarded as “ pure agent” and only if all such (difficult to comply with) conditions are complied with, then only expenditure can be claimed from Customers in the form of REIMBURSEMENTs without ST.Hope the matter is clearer.

Naveen Kumar

Naveen Kumar (Querist)
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19 October 2012 Service has been defined in clause (44) of the new section 65B and means -

any activity
for consideration
carried out by a person for another
and includes a declared service.

But here there is no consideration. It just for the convenience for the client.

Some suggest, ABC (P) Limited should refrain from making payments on its client behalf or charge Service Tax on reimbursement.

Naveen Kumar

Naveen Kumar (Querist)
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Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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20 July 2025 This is a common and tricky situation with reimbursement of electricity bills under Service Tax (now GST) law, especially regarding whether Service Tax should be charged on such reimbursements. Here's a clear breakdown based on the negative list regime and the "pure agent" concept:

Facts:
ABC (P) Ltd provides repair services to clients.
ABC pays electricity bills (BSES & NDPL) on clients’ behalf.
ABC raises debit notes to recover actual electricity charges without markup or profit.
ABC charges 12.36% Service Tax on repair service invoices.
Key legal points:
Is electricity distribution a taxable service?
No. As per Section 66D(k) of the Finance Act, 1994, distribution of electricity by a specified agency is excluded from Service Tax (non-taxable).
Is the reimbursement of electricity bill by ABC taxable?
It depends if ABC acts as a "pure agent" of the client or not.
For the reimbursement to be exempt from Service Tax, ABC must satisfy the 13 conditions of "pure agent" as defined in Rule 2(1)(d) of the Service Tax Rules.
These conditions include that ABC:
Acts as a pure agent of the client.
Passes on the expense without markup.
Expenses are for services that the client receives directly.
ABC does not use or consume these services in its own course of business.
Adequate documentation and proof are maintained.
Practical difficulties:
Many departmental audits have challenged reimbursements claimed as pure agent, leading to tax demands.
Since ABC pays the electricity bills (an excluded service), and recovers it without markup, this seems like reimbursement.
However, because ABC is paying on behalf of client (convenience), it can be argued that this is a pure agent reimbursement and should not attract Service Tax.
What if conditions are not met?
If the 13 pure agent conditions are not met, Service Tax must be charged on the entire amount of reimbursement.
What do experts generally suggest?
Either ABC should not pay electricity bills on behalf of clients, and clients should pay directly.
Or, ABC should charge Service Tax on the reimbursement amount to be safe.
Maintaining detailed agreements, proof of expenses, and clear billing as "reimbursement" is crucial to avoid litigation.
Summary Table:
Scenario Service Tax Applicability
ABC meets all 13 pure agent conditions No Service Tax on electricity reimbursement
ABC does not meet pure agent conditions Service Tax applicable on reimbursement amount
Electricity distribution by specified agency Exempt from Service Tax under Section 66D(k)
Final Advice:
Review and document the arrangement carefully.
If uncertain, better to charge Service Tax on reimbursement or have clients pay electricity directly.
Keep supporting documents for reimbursements.
Consult a tax expert for audit readiness.

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