Latest Expert Exchange Queries

GST Demo Service software link:
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Popular Search: VAT RATES :: empanelment :: form 3cd :: due date for vat payment :: cpt :: ACCOUNTING STANDARDS :: TDS :: ARTICLES ON INPUT TAX CREDIT IN VAT :: VAT Audit :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: articles on VAT and GST in India :: Central Excise rule to resale the machines to a new company :: ACCOUNTING STANDARD :: TAX RATES - GOODS TAXABLE @ 4% :: list of goods taxed at 4%
News Headlines »
 How to file income tax returns online without having Form 16 in 10 simple steps
 Deadline For Filing Income Tax Return (ITR) Is Just 11 Days Away: 10 Latest Details To Know
  10 incomes you need not pay any tax on
 How To File Income Tax Returns In Three Steps By March 31, 2018
 10 things about income tax every taxpayer should know
 What to do if your TDS is not deposited with the government
 What if you forget to verify your Income Tax return?
 TDS on rent and other tax tasks to complete before March 31
 5 income tax changes which will come into effect from April 1, 2018
 Why you shouldn't be a last-minute tax filer
 How to calculate income tax for this assessment year on Moneycontrol

Out of pocket expenses invite service tax
December, 13th 2006

Q.1 We are an engineering consultancy company and render such services to a variety of clients. We were under the impression that out-of-pocket expenses incurred by us towards boarding and lodging and similar costs related to travels of our engineers can be recovered by us from our clients without the levy of service tax. This is the practice that we have followed for the past several years. We are now informed that service tax is chargeable on these reimbursements and that we have to accordingly amend our invoicing pattern. We wish to know whether this is indeed correct. 
The Finance Act, 2006, has brought about major changes in the principles of determination of the value of taxable services. Valuation of taxable services is now governed by the newly substituted Section 67 of the Finance Act, 1994, read with the Service Tax (Determination of Value) Rules, 2006 (hereinafter referred to as Valuation Rules). 
As per Rule 5 of the Valuation Rules, whenever any expenditure or costs are incurred by the service provider in the course of providing taxable services, all such expenditure or costs shall be treated as consideration for the taxable services so provided or to be provided and shall be included in the value for the purpose of charging service tax on the said services. 
This would mean that out-of-pocket expenses incurred by the service provider for the provision of services and charged to and recovered from the recipient of the services will be part of the value of taxable services and will be charged to service tax. 
The CBEC Instruction Letter (B1/4/2006-TRU), dated 19-04-2006, issued pursuant to the Valuation Rules, also provides that value, for the purpose of charging service tax, is the gross amount received as consideration for provision of service. All expenditure or costs incurred by the service provider in the course of providing a taxable service form an integral part of the value and are to be included therein. 
Several illustrations have been incorporated under the Valuation Rules to clarify the position in this regard. It is, therefore, now clear that all charges/recoveries from clients by service providers will form a part of the value of taxable services and charged to service tax. 
Q.2 We are a company engaged in manufacturing in India. We are a subsidiary of an overseas company for which we also carry out various sale promotion activities in relation to its products which are not manufactured by us here. For providing these services, we are compensated by way of commission, which is a specified percentage of the value of any orders that we are able to procure from customers in India. This commission is received by us from our parent company abroad in US currency. Are we liable to pay service tax in relation to these sale promotion activities or do these services constitute exports from India and are hence exempt from levy of service tax? Please advise. 
A It is true that if taxable services provided from India qualify as exports, they are exempt from service tax. Therefore, the services of sale promotion provided by your company would be exempt from tax if such services constitute exports under the Export of Services Rules, 2005. 
As sale promotion activities are covered under the taxable category of business auxiliary services, it is relevant to examine the export criteria for this category of service. Till 18-04-2006, business auxiliary services provided to a foreign recipient, which did not have an office in India, were considered as exports if the recipient was located outside India. 
Accordingly, there was no service tax liability on your company for these services provided till that date. However, the situation has changed thereafter, as the criteria to determine the fact of export of services have undergone changes. 
As per the new criteria, business auxiliary services would be considered as export from India if such services are in relation to business or commerce, the payment for the services is received in convertible foreign exchange and the services are delivered outside India and used outside India. 
All these conditions need to be met if such services are to qualify as exports. Although your company is in a position to satisfy the first two conditions mentioned above, the third condition, namely the delivery and use of service outside India, is not met. This is because sale promotion services are executory in nature. 
They are delivered at the place where the sale promotion is actually done. Therefore, such services cannot be considered as being delivered outside India. Consequently, services of sale promotion provided by your company to the parent company would not qualify as exports with effect from 19-04-2006 and your company will be liable to pay service tax thereon. 

S Madhavan
The writer is leader, indirect tax practice, PricewaterhouseCoopers

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Our Team

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions