reimbursement of expense

Reimbursement of expense ordinarily refer to such expenses that were incurred on behalf of the client. For example, when an octroi agent pays octroi and later seeks its reimbursement from the client, it is evident that the agent was not liable to pay the octroi. He discharged liability of his client. The expense was a kind of temporary loan to the client.

However, the same octroi agent can’t claim reimbursement of his office rent. Paying rent is a business expense of the agent. He does not pay the rent on behalf of his client. The client is under no obligation to pay it.

Rent, telephone bill, staff salaries etc. are business expense of your client. These are not spent on behalf of somebody. There is no question of seeking reimbursement.

hi
ours is the software company ,  we provide some of the support related services to our client for that they will reimburse the actual cost incurred , i.e. travel expenses to customer place, telephone expenses,  can will it attracted to service tax & and also TDS

please clarify  and please quote case laws if any

regards
subbu

my client having registration as a Custom Agent & Steamer agent and in the couse of busimess he gets riembursment of certain expenses by raising bills to the service receiver . Now i would like to know wheter he is taxable to the such riembursment ? and whether he should charge the service tax on the riembursment bill for expenses like telephone, handling charges,courier bill etc. ?

You have to study the situation on a case to case basis and the agreement made. Normally what reimbursements you receive for expense purely as an agent of the recepient of service would not be included subject to certain conditions. You would normally mention in the agreement that you make certain payments on behalf of the principle that ought to be reimbursed. Such payment should be purely as an agent and should not be a benefit to you during the course of your business. Take following illustrations for the C&F Agent.

The Principal has asked him to additional work at the premises of the C&F Agent for which an employee has to be engaged and the cost of employee would be borne by the principal. This activity will not be in the scope of the agreement with the C&F Agent. say there are goods that have damaged packs and a labour was engaged to make good the damage. this work is not in the scope of the agreement between the agentan d principal but for convenience sake he has to pay and take money for principal or principal may give him money to pay out on their behalf for these charges. Such charges are purely as an agent.

Now the scope of the C&F agreement is to receive the goods and store in the godown. He brings a forklift from outside to unload. Now if the agreement specifically states that the cost of forklifts will be reimbursed, the bill should be in the name of the principal andagent claims the reimbursement. However if the scope of the agreement is that C&F agent does an all inclusive job of receiving, unloading and storing thenhe cannot claim the reimbursement cost of the forklift because that is in his scope of work.

In the agreement if it is stated that the Principal will collect the records from the agents premises and at an instance the principal may ask that the agent should send the records to them and they will bear the cost, there will be no Service Tax as the reimbursement will be on purely an agent basis and even if a person incurs air travel to take the records, there will be no Service Tax. However, if the agreement is such that the agent is responsible to deliver the records to the principal, then he cannot split the bill to be reimbursed cost for expenses in all this.

Therefore, finally everything comes down to one document called the agreement between Service receiver and Provider and the reimbursement should pass the test of being purely as an agent based on this agreement.

The agent CANNOT claim reimbursement of expense on any item that is incurred within his scope of work. Any such items will be deemed to be his receipt for service rendered.

Dear Sir.

In the cases, where Service Provider is incurring certain expenses, in addition to his service, such reimursable expenses are not liable for payment of Service Tax. Such reimbursable expenses are not a part of service provided by the Service Provider.

However, it is absolutely necessary to obtain seperate bill for such reimursable expenses from the Service Provider, duly supported by the invoices/documents of persons/firm, from whom such Service is availed by the Servive Provider. If it is a consolidated invoice from the Service Provider, Service Tax is payable on full amount charged by the Servoce Provider i.e amount of service plus reimbursable expenses.

However, the Service Provider is required to ensure that the the documents from whom the service has been availed by him, on behalf of Service Receiver (i.e your client) indicates the name of Service Receiver (i.e your client). This would prove that the Service Provider has availed the services on behalf of the Service Receiver (i.e your client).

In short Service Tax is payable only on the Services provided by the Service Provider and not on the reimbursable expenses incurred by him on behalf of Service Receiver (i.e your client), subject  to a seperate bill for both and supporting documents.

Regards.

DILIP DARJI.

 

Correct. It is advisable that the billing should be in the name of the service receiver. So if service provider incurs air travel, he should ask the travel agent to provide bill in name of service receiver (the client).

Originally posted by : Ashutosh
	Reimbursement of expense ordinarily refer to such expenses that were incurred on behalf of the client. For example, when an octroi agent pays octroi and later seeks its reimbursement from the client, it is evident that the agent was not liable to pay the octroi. He discharged liability of his client. The expense was a kind of temporary loan to the client.However, the same octroi agent can’t claim reimbursement of his office rent. Paying rent is a business expense of the agent. He does not pay the rent on behalf of his client. The client is under no obligation to pay it. Rent, telephone bill, staff salaries etc. are business expense of your client. These are not spent on behalf of somebody. There is no question of seeking reimbursement.

Is octroi agents liable to service tax at all?

Originally posted by : Subramanyan
	hiours is the software company ,  we provide some of the support related services to our client for that they will reimburse the actual cost incurred , i.e. travel expenses to customer place, telephone expenses,  can will it attracted to service tax & and also TDSplease clarify  and please quote case laws if anyregardssubbu

Yes Service Tax is applicable on the gross amount charged (ie reimbursed amount + amount charged for services). Refer Rule 5 of Service Tax (Determination of Value) Rules, 2006 - Valuation Rules. Also in the instant case you doesnt fit is the defination of Pure Agent.