Serviice tax input credit

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Preethi

Preethi (Querist)
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30 January 2013 Can we take Service tax input credit in case of Reimbursement of expenses to employees?

RENGARAJ R.K

RENGARAJ R.K (Expert)
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30 January 2013 What kind of expenses?

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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25 July 2025 Hi,

Your question is about Service Tax input credit eligibility on reimbursements made to employees, which was a common issue under the pre-GST regime.

Here’s a clear breakdown:

✅ Short Answer:

No, generally CENVAT credit of Service Tax cannot be claimed on expenses reimbursed to employees, unless very specific conditions are met.

🔍 Detailed Explanation:

1️⃣ Reimbursements to Employees – General Rule:
When employees incur expenses (e.g. travel, hotel, cab, etc.) on behalf of the company and get reimbursed, the expense is in employee’s name, not the company.
In such cases, invoices are not in the name of the company, and hence CENVAT credit is not admissible.
📌 CENVAT Credit Rules, 2004, require that the invoice should be in the name of the service recipient (i.e., your company), not an individual.
2️⃣ Exceptions – Where Credit May Be Allowed:
If all the following conditions are met, you may be eligible to claim credit:

The invoice is in the company's name.
The service is used in or in relation to business (e.g., business travel).
The company ultimately bears the cost (i.e., reimbursed without markup).
The service provider has charged Service Tax and the company is the actual recipient.
👉 In such structured reimbursements (like centralized travel booking systems or corporate arrangements), companies could take credit.

⚠️ CBEC Clarifications:

The CBEC has issued multiple circulars (e.g., Circular No. 943/4/2011-CX dated 29.04.2011) clarifying that mere reimbursement to employees does not make the company the “recipient” of service, unless properly structured.

✅ Best Practice:

Use corporate accounts or company billing for services to avoid Service Tax credit disputes.
Avoid taking credit on bills issued to employees individually unless supported by strong documentation and a direct business nexus.
🧾 Summary:

Scenario CENVAT Credit Available?
Expense reimbursed to employee, invoice in employee’s name ❌ No
Invoice in company’s name, service used for business, tax charged ✅ Possibly (subject to audit)

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