Service tax applicability on debit notes, Service Tax

[Manoj Aggarwal]

In X Group of companies, there are three companies. In one co.A of the said group, there is one employee who is IT/EDP Manager. This employee look after the IT needs of all three companies. His salary cost is shared by other two companies also in a pre agreed ratio.They have a MOU for this purpose and also for sharing other common costs like travel, conveyance etc. Is service tax applicable on Debit notes raised by Co. A on other two companies for such sharing ? Is TDS also applicable on this ??

Posts / Replies

[Madhukar N Hiregange]

In normal course when only the costs are being shared there is no service between the companies. It maybe ensured as a measure of abundant caution that the rule 5(2) conditions are also met.

[V Ramanujam]

I am of the view that the cost of sharing employee’s salary with costs like his travel, conveyance etc between the separate entitles in the group is liable for tax deduction u/s 194J of the Income tax Act and company sharing the cost is obliged to deduct TDS on payments made against debit notes. In addition, based on Service tax Valuation rules, I feel that the activity would also attract Service tax and the company raising the debit notes is required to charge/pay service tax on the sharing amount/reimbursements.