Finance Act 2006 – consequences – TRU clarifies
The Tax Research Unit – TRU in the CBEC has issued a detailed explanation to the changes consequent to enactment of the Budget 2006.
Service Tax valuation:-
Where the consideration received for provision of services is wholly in money, the value shall be the gross amount charged by the service provider for provision of service.
Where the consideration received for provision of service is not wholly consisting of money, the value in such cases shall be the gross amount charged by the service provider for provision of similar service to any other person in the ordinary course of trade.
If the value of similar service provided by the same service provider is not available, then the value has to be determined.
Money value of non-money consideration received should be determined by the service provider.
If the consideration received is not wholly consisting of money, equivalent money value of the consideration determined by the service provider shall be the taxable value for charging service tax.
If the consideration received is partly in money and partly in non-money terms, the sum of consideration received in money and the equivalent money value of the non-money consideration determined by the service provider shall be the taxable value for charging service tax.
The taxable value shall be determined by the service provider but the value so determined for the purpose of paying service tax should not be less than the cost of provision of such service.
Will these lead to frequent Show Cause Notices? TRU advises extreme care and caution.
Verification only after written instructions from the Divisional AC/DC.
Before issuing any show cause notice on matters relating to valuation, concurrence of Commissioner should be obtained
Reimbursable expenditure
All expenditures or costs incurred by the service provider in the course of providing a taxable service forms integral part of the taxable value and are includable in the value.
Amounts paid to the third party by the service provider as a pure agent of his client can be treated as reimbursable expenditure and not includible in the taxable value.
However, if the service provider acts as an undisclosed agent i.e. acting in his own name without disclosing that he is actually acting as an agent of his client, he cannot claim the expenditure incurred by him as reimbursable expenditure. Whether the expenditure or cost incurred by the service provider in his capacity as a pure agent of the client or incurred on his own account is a question of fact and law and is to be determined carefully.