The recovery of cost/payment made by a registered person on behalf of another party is termed as a “disbursement”

A disbursement does not constitute providing taxable services & hence, is not subject to service tax

Payment to third party or on behalf of the principal will be treated as disbursement if the registered person fulfills all the following criteria:

• Incur expenses on behalf of the client
• The client is the recipient of the services (invoices is in the client’s name)
• The payment is authorized by the client
• The client knew that the services is made by a third party
• The exact amount is claimed from the client & has no right to alter/add on the value of the services
• The payment is clearly an additional to the services made to the client

A reimbursement is subject to service tax. A registered person must fulfill all the following criteria

• Incur expenses as principal
• The client is not the recipient of the services (invoices is in the principal’s name)
• The principal is the person responsible to pay for the service
• The payment is not authorized by the client
• The client has no knowledge that the service is made by a third party
• The principal has the right to alter/add on the value of the services
• The payment is for the service made to the client