Recovery of expenses

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CA Ganesh Karthik

Chartered Accountant

268 Points Posted on 09 May 2012

Hi Members..

Whether mere recovery of expenses can be treated as service?

I mean, in case of group companies, the expenditures are normally shared by them. Initially, an expenditure may be incurred by one company, which it may later on recover from the other group company..

In such case, there is no underlying services rendered by any company, but only a reimbursement (or recovery) of expenses..

Whether even such reimbursements attract service tax? If so, under what service?

Thanks in advance..

Replies (5)

Prateek Agarwal

Sr. Executive - Finance & Accounts

1846 Points Posted on 09 May 2012

No..it doesn't attract Service Tax since it is a mere re-imbursement of expenses.

But if one company has paid to the party certain amount inclusive of service tax, then it can charge the other company an amount equivalent to the amount paid by it on behalf of the other.

Prasad

Sr. Manager

625 Points Posted on 09 May 2012

As per the Service Tax (Determination of Value) Rules 2006, a reimbursement of expenses shall be liable to be taxed unless the same is incurred by the service provider as a "pure agent" of the service receiver.

As per Rule 5 of the Rules, the gross amount charged shall include the cost and expenditure incurred in connection with the taxable services charged to the service receiver.

No deduction is allowed on the reimbursement of expenses unless, once again, these expenses are incurred by the service provider as a pure agent of the service receiver.

This was challanged in Delhi High court, not sure about the decision in the case.

Please refer Notificaiton No 12/2006 for more details

Vikas

1245 Points Posted on 10 May 2012

No it can not provided all the documents are in the names of principal or handed over to principal and not cenvat on such exp claimed by agent...

Akash Jain

CA Final Student

248 Points Posted on 10 May 2012

No Service Tax on recovery of expenses as it is a form of reimbusement of expense and it does not attract service tax provided seperate bill of reimbursement is provided for the same

Regards Akash.

Vikas

1245 Points Posted on 10 May 2012

No...it can not.... provided all the documents are in the names of principal or handed over to principal and no cenvat on such exp claimed by agent...