We are engaged in providing market research services to many companies in India, and charge service tax on the consideration received for services. In the course of providing services, we incur various out-of-pocket expenses that are billed to the client on actual basis. Do we need to charge service tax on reimbursements received from the client in respect of such expenses?

In terms of the Service Tax Valuation Rules, expenses incurred by the service provider in the course of providing taxable services are to be included in the value for charging service tax. However, in case the service provider incurs any expense in the capacity of a ?pure agent? of the service recipient, such expenses can be excluded from the value of taxable service provided certain prescribed conditions are satisfied. These include the liability to make such payments should be on the clients; the service provider should be duly authorised by the clients to make payments; only the amount paid should be recovered from the clients; the amount of such expenses should be separately indicated in invoices; and such services are procured in addition to services provided by you to the clients.

We operate a motor vehicle dealership and have been authorised by the manufacturer to sell specified models of trucks, light commercial vehicles and cars. We have also been authorised to operate a service station engaged in servicing and repair of such vehicles. Are we required to pay service tax in respect of such activities?

The Finance Act, 1994 defines an authorised service station as any service station or centre, authorised by a motor vehicle manufacturer to carry out servicing, repairing, reconditioning or restoration motor cars, light motor vehicles and two-wheeled motor vehicles. Since you have been authorised by the automobile manufacturer to operate the service station, service tax is required to be paid.

However, the relevant provisions specifically exclude services provided in relation to heavy vehicles such as trucks. So, service tax would not be payable in this regard as servicing, repair etc of heavy vehicles is a non-taxable service. Service tax would be payable only on the value of services provided in respect of light commercial vehicles and cars.

We are engaged in the manufacture of certain parts for an automobile company. The moulds and dyes to be used in the manufacturing process are supplied by the automobile company and are returnable upon termination of the contract. The ownership of the moulds and dyes is retained by the automobile company. Please let us know the taxability of such supplies in our hands.

The Central Excise Act, 1944 provides for inclusion in the assessable value of any additional consideration flowing from the buyer to the manufacturer in relation to the manufacture of goods for levy of excise duty. Additional consideration includes the value of tools, moulds and dyes supplied free or at a reduced cost by the buyer, to be used in the manufacture of goods. Accordingly, you would be required to compute the ?per-unit amortisation cost? of the moulds and dyes supplied by the automobile company, and include it in the price of goods at the time of calculation of excise duty.

However, at the time of calculation of Value Added Tax (VAT)/Central Sales Tax (CST), you may reduce such amortisation cost from the sale price, as no sale of the moulds and dyes has taken place to the automobile company to you. Since the moulds, dyes continue to belong to the automobile company, VAT/CST would not be payable on the amortisation cost of free-of-cost supplies by the buyer.

We are wholesale traders in machine tools, which we purchase on payment of excise duty and VAT from various manufacturers and supply across the country. Some customers have been complaining about problems they are facing in availing Cenvat credit of the Excise duty included in the price of goods purchased from us, and have advised us to obtain the central excise registration. Not being manufacturers, can we still obtain excise registration?

It is possible for traders in excisable goods to obtain registration as ?first-stage? or ?second-stage? dealers. The Cenvat Credit Rules, 2004 provide for a mechanism where a trader, buying goods from a manufacturer on payment of excise duty, is eligible to obtain such registration. While selling, such a trader, being a first-stage dealer, can pass on the amount of excise recovered by the manufacturer to customers, who would then be eligible to claim Cenvat credit of this amount, in case they are required to pay excise or service tax on their output. If goods covered by one excise invoice of the manufacturer are supplied to multiple customers, pro-rata credit can be transferred to each customer.

?Respondents are senior professionals at Ernst & Young. The replies do not constitute professional advice, but are based on interpretation of facts available in readers? queries to the professionals. Neither Ernst & Young nor this publication is liable for any action taken on the basis of this information