Inclusion and Exclusions in Value of Taxable Service /Pure Agent:

Rule 5 of the service tax (determination of value) rules ,2006  deals with the above subject.

• Inclusion of certain expenditure or costs in value: 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 of the taxable service for the purpose of charging service tax on the said service. Moreover, the value of taxable service is the total amount of consideration consisting of all components of the taxable service and it is immaterial that the details of individual components of the total consideration is indicated separately in invoice.

This is so because as the service tax is a destination based consumption tax ,all the expenses/cost incurred till the point of consumption shall form part of the consideration of service.

For example Mr. P is acting as C& F Agent for company X Ltd. and was paid Rs. 2 lakhs as his commission and was further reimbursed expenses  like godown rent ,internet expenses, house keeping ,telephone, courier etc. totaling Rs.24000.

Here, the taxable value  of his service shall be Rs.2.24 lakhs

• Expenditures or costs incurred as pure agent not to be included: However, the expenditures or costs incurred by the service provider as a pure agent of the recipient of service shall not be included in the value of taxable service on fulfillment of all the  conditions given below-
• The service provider acts as pure agent of the recipient of service when he makes payment to third parties for goods or services procured;
• The recipient of service receives and uses the goods or service so procured by the service provider in his capacity as pure agent of the recipient of service;
• The recipient of service is liable to make payment to the third party
• The recipient of service authorizes the service provider to make payment on his behalf
• The recipient of service knows that the goods and services for which payment has been made by the service provider shall be provided by third party;
• 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;
• The service provider recovers from the recipient of service only such amount as has been paid by him to the third party and
• The goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account.

 

For Example : 1.P contracts with Q , a real estate agent to sell his house . Thereupon , Q gives an advertisement in T.V which costed him Rs.25000 . Q billed P for Rs. 2.25 lakhs . The invoice showed Rs. 2 lakhs as consideration for his service and Rs. 0.25 lakhs for the T.V advertisement .Q paid service tax only on Rs. 2 lakhs ,claiming that Rs. 0.25 lakhs was paid as a ‘pure agent’.

In this case based on rule 5 relating to ‘Pure Agent’ ,it is clear that Q does not act as ‘pure agent’ while giving T.V advertisement though it is separately shown in invoice .Advertisement service is an input service for the real estate agent in order to enable him to perform his service as an real estate agent.  Therfore,  service tax is payable on 2.24 lakhs.

2. A Customs house agent paid custom duty of Rs. 1 lakhs on behalf of his client and the same was included in his fees 5 lakhs. In this case the value of taxable service will be Rs.4 lakhs as the agent was acting as ‘pure agent’ with respect to custom duty.

 

In short , section 67 (1) (iii) of the Finance Act ,1994 ensures payment of service tax based on valuation even when consideration is not ascertainable.

 

Scope of Gross amount charged (section 67 (3) ) :  The gross amount charged for taxable service shall include any amount received towards the taxable service before ,during or after provision of such service.