Wednesday, September 7, 2011

Can service tax levy be applicable on mere reimbursement of expenses?

Can service tax levy be applicable on mere reimbursement of expenses?
 
In cases of mere sharing of expenses, it is hard to imagine existence of value addition so as to attract service tax levy. Only with effect from 19.04.2006, the provision of Section 67 has been amended and the concept of “consideration” has been introduced and by virtue of Rule 5 of the Service Tax (Determination of Value) Rules, 2006, the consideration is defined to include reimbursement of expenses also.
 
As per Rule 5(1) there is a deeming fiction created to consider all the expenditure or costs incurred by the service provider in the course of providing taxable services as consideration. All the expenditure or costs so incurred by the service provider and borne by the recipient will have to be included in arriving at the value for charging service tax on said service.


by  Madhukar N Hiregange

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