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LEGAL OPINION ON THE FOLLOWING ISSUE IS REQUIRED

X Owner company,
Y Joint venture company where 'X' & 'Z' are 50% each partners,

'X' (Owner) makes an agreement with 'Y' for providing services of cleaning, housekeeping, painting, repairing, maintenance, etc. Conditions of agreement are as below;
'Y' shall provide the required services mentioned above to 'X'
'X' agrees make the payment to 'Y' for the services @ actual cost and also agrees make payment of profit margin & overheads @ 10% over the job cost.

For carrying out the works, 'Y' awards contracts with different agencies through tendering. 'Y' raises the bills based on the actual contract cost + 10% profit margin while claiming the payment from 'X' (as per the above agreement),
Expected overheads in the above are expenditure in maintenance of office, postal & telephone charges incurred for the office, etc.

In the above agreement considerations are;
Consideration to 'X' services are received from 'Y' payment (consideration) as per agreement is made to 'Y'

'X' has also agreed to reimburse of salary and wages of the managing personnel of company 'Y' employed by them for managing / operating the services.
This reimbursement is independent of services provided, i.e., even if no services are provided this reimbursement shall be made.
The reimbursement of salary & wages is without any consideration, 'X' does not receive anything in return.

With the applicability of Service tax, all the subsequent bills raised by 'Y' for the work executed through their sub contractors, service tax is claimed and reimbursed by 'X'

'Y' also starts claiming service tax on the managerial salary/wage reimbursements.
Whether service tax is payable on such managerial salary/wage reimbursements?
Suppose if 10% profit margin is also paid on managerial salary/wage reimbursements, what is the service tax liability position?

Replies may be mailed to me directly at also.

Regards,

(A.R.Srinivasa)

Yes- service tax is payable at the appropriate rate for the bill raised for services rendered irrespective of the fact-whoever may be the partner or whatever might be the constitution of the company.
I am sorry- there is a correction- no service tax is leaviable on remuneration paid for managerial services rendered. Instead TDS has to be recovered from such payments.
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