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Tax expert sees devil in service tax rules

Our Bureau

Kolkata , March 7

Describing the Central Budget 2006 as highly service tax-oriented, Mr Bhanu Prakash Agarwal, tax consultant and expert in service tax, said the new Service Tax Draft Valuation Rules (just put on the Ministry website) pack an unexpected knock-out punch for all service providers who are planning to take a call on reimbursements.

According to him, the Rules, when interpreted are such that the purpose seems to be that no one should claim any reimbursement at all after rendering services.

Speaking at an interaction session on the Budget, organised by The Bengal Chamber of Commerce & Industry (BCCI) here today, Mr Agarwal said the new draft Rules have taken an extremely harsh view of such reimbursements as taxable services, especially for those like clearing and forwarding agents. He said such reimbursement claims, subject to fulfilment of as many as eight conditions (now included in the Rules), out of which some are impossible to fulfil, may well render such reimbursements as a closed chapter for all service providers.

He said conditions like "Provider of service should act as agent of the recipient " or that "actual amount to be reimbursed should be equal to the expenditure incurred" were all right, but some like "recipient should have knowledge of payment made to the third party" or "recipient should be responsible for payment to third party" or "recipient should use the goods and services received" bordered on the bizarre.

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