APPLICABILITY OF SERVICE TAX - ON TWO ISSUES

[Lakkur SAI KRISHNA KUMAR]

Dear FRIENDS

Greetings!

May I request you to clarify on two issues:

1)  Reverse Charge Mechanism in respect of reimbursement of actual expenses by an overseas Holding Company, (HC), when HC does not charge for its services. In other words there is no taxable services

An Indian company directly exports goods ( manufactured to the specifications of its overseas customers.) The overseas HC deals in respect of customer rejects ( i.e collects goods returned). In the process HC incurs expenses such as credit card charges paid to customers. courier,postage, telephone charges etc. The HC raises debit notes for all such expenses on actuals without any profit margin. The issue is the applicability RCM in respect of reimbursement of expenses . My view is that since HC does not charge for the services ( no taxable service ), the question of RCM WILL NOT ARISE ON REIMBURSEMENT OF EXPENSES. I also relied on the case law relating to .Intercontinental Consultants & Technorats (p) ltd., v.

Union of India  (2012)38 STT 75/ 28 TAXMAN.COM 213 (Delhi) that quantification of value of service can never exceed  gross amount charged by service provider for service provided by him.  The expenditure or costs incurred by service provider in the course providing taxable service can never be considered as gross amount charged.  Hence the said rule had travelled   beyond scope of sec 67 and was ultra vires .  Definition of "consideration" and " gross amount " charged  in section 67 also did not cover 'expenditure  or costs"  incurred by service provider  there under.  Hence Rule5  (1) was struck down. Besides Sub rule (1) of Rule 5 deals with "........in the course of providing taxable 

In my opinion that  one needs to understand the differences between the expenses incurred by the service provider during the course of providing the taxable service and expenses incurred the service provider on behalf of service receiver. One of the important conditions is that liability for the payment of expense should be primarily on the client. If the service provider pays any tax, duty etc which is actually a liability of the service receiver and get reimbursed from the service receiver it will cover under concept of pure agent provided other conditions are satisfied.

I wish to bring to your attention the  Board circular No.62/11/2003 ST, dated 21 August 2003, clarified that as per charging Section 66 of the Finance Act, 1994, service tax is chargeable of the value of taxable service. Thus, if the value is zero the tax will also be zero even though the service is taxable. (  I PRESUME THAT THE SAID CIRCULAR IS STILL IN VOGUE).

 

I request you  to provide me  your replies ;

 1) (a), if HC is a pure agent and   (1) b)  if not .

 2) since the goods are manufactured to the specification of overseas customers , will there be any export of service) and if so, how do we value the services

.

II ) Applicability of Service Tax on usage of Credit card issued  by a bank in India and used in foreign countries

Sir,  I have come on holiday to America, to spend some time with my son's family. I used the Credit card issued by HDFC bank , Chennai branch. They charged me service charges, for the transaction done outside the Indian territories. Please clarify.

sir, regret for the inconvenience given to you and I am grateful for your assistance 

with warm personal regards

L SAI KRISHNA KUMAR,