Service tax on electricity charges

Hi All,

The following reply received from Hotel saying that...

Electricity expenses recovered from Travel Counter where separate meter is installed and the amount is recovered on actual basis, no
service tax may be collected on the amount of reimbursement.


However in case where electricity is being recovered on estimated basis service tax may be charged on it.


The above view is mainly on account of the following reasons


As per Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, “
Where any expenditure or costs are incurred by the service provider in the
course of providing taxable service, all such expenditure or costs shall be
treated as consideration for the taxable service provided or to be provided
and shall be included in the value for the purpose of charging service tax
on the said service.”


Further  Rule 5(2) of Rules state that Subject to the provisions of
sub-rule (1), the expenditure or costs incurred by the service provider as
a pure agent of the recipient of service, shall be excluded from the value
of the taxable service if all the specified conditions are satisfied.


The conditions are:
i. The service provider acts as a pure agent of the recipient of service when he makes payment to third party for the goods or services
procured;

ii. The recipient of service receives and uses the goods or
services so procured by the service provider in his capacity as pure
agent of the recipient of service;

iii. The recipient of service is liable to make payment to the third
party;

iv. The recipient of service authorizes the service provider to
make payment on his behalf;

v. the recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by the third party;

vi. the payment made by the service provider on behalf of the
recipient of service has been separately indicated in the invoice
issued by the service provider to the recipient of service;

vii. the service provider recovers from the recipient of service
only such amount as has been paid by him to the third party; and

viii. the goods or services procured by the service provider form the
third party as a pure agent of the recipient of service are in
addition to the services he provides on his own account.
 

Case Study :point out here a recent Delhi High Court decision in case
of Intercontinental Consultants and Technocrats Pvt. Ltd. Vs. Union of
India & ANR (2012-TIOL-966-HC-DEL-ST) wherein it was held that
reimbursement of expenses are not includible in gross consideration for the chargeability of Service Tax and hence are not liable for service tax


Thus is case of actual reimbursement you may not charge service tax but in
case where it is recovered on assumption basis service tax may be charged.

On the Above ground The Hotel has been Charging Service Tax on Debit Note reised to Travel Counter for Electricity Expenses (Estimated Basis) recoverable from Travel Desk and insisting us to pay Full debit note amount including Service Tax to the hotel.

Please Advice if there any rule for electricity Expenses charged on "ESTIMATED BASIS" will attract Service Tax and Charging of Service Tax on Electricity Exp.on 'ACTUAL BASIS" will not attract Service Tax.

Mangesh Jambhale