Service Tax on inter group service charges

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anil5001 (Querist)
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24 January 2008 A big group consist of three four companies, incurring common expenses and sharing among the comapanies in pre-determined ratio. Is the service tax applicable? if yes some section, case laws (if any) may please be quoted for reference.

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)
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25 January 2008 Mere exact sharing of expenditure without the element of provision of service will not render the amount shared service taxable. The test is existence of notified list of taxable services under the Finance Act, between the service provider and service availer.

Dayal

Dayal (Expert)
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30 January 2008 Charging proportionate amount to associate companies /subsidiary, having separate legal entity on account of sharing of services would attract service tax liability.

For instance premise taken on rental by principal company and shared by associate or subsidiary for which debit note is raised on associate / subsidiary for rent attributable to them will be termed as rendering of service to the subsidiary / associate company by the principal

It would be ideal to avail proportionate credit on the amount attributable to the service consumed by principal. (if associate /subsidiary does not have any output service)

Or

To avail full credit and charge the same to associate (If associate/ Subsidiary provides output taxable service) and adjust the credit of service tax against such payments.

The second option will require the principal to follow all the procedures under the act right from seeking registration.

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