In re Yaadvi Scientific Solutions Private Limited (GST AAR Karnataka)
i. Whether on reimbursement of expenses at actual cost which are incurred by the employee staffs on behalf of Company is liable to tax?
Reimbursement of expenses at actual cost which are incurred by the employee staffs on behalf of Company is not liable to tax since the same is covered under Clause 1 of the Schedule III of CGST Act 2017.
ii. Whether Reverse Charge Mechanism is applicable on reimbursement of expenses paid on behalf of the company at actuals which are incurred by the employee staff who is also a whole-time director company?
Reverse Charge Mechanism is not applicable on reimbursement of expenses paid on behalf of the Company at actuals which are incurred by the employee staff who is also a whole-time director Company.
iii. Whether –
a. time limit prescribed to take input tax credit under the section 16(4) of the GST Act, 2017 applies only for the invoice or debit note for the supply of goods or services or both or it shall also applies to invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31 i.e.., self-invoices by registered person who is liable to pay tax under sub-section (3) or sub-section (4) of section 9 (Under reverse charge mechanism).
b. Tax paid during current financial year under reverse charge mechanism as per sub-section (3) or sub-section (4) of section 9 for any of the previous financial year transaction, input tax credit on such payment of tax would be availed in the year of payment or in the year in which transaction happened.
a) This question is not covered under section 97(2) of the CGST Act 2017, in respect which an applicant can seek advance ruling and hence this authority refrains from giving any ruling in this regard.
b) This question is not covered under section 97(2) of the CGST Act 2017, in respect which an applicant can seek advance ruling and hence this authority refrains from giving any ruling in this regard.
iv. If answer to the Question 1 and Question 2 is affirmative, whether reverse charge is to be calculated on values including GST or excluding GST.
Reverse charge is to be calculated on values excluding GST.
FULL TEXT OF THE ORDER OF AUTHORITY FOR ADVANCE RULING, KARNATAKA
M/s. Yaadvi Scientific Solutions Private Limited, (hereinafter referred to as The applicant’), No.68/P, Khata Janjar No.99, Hootagally Industrial Area, Survey No. 188, Koorgally Grama Panchayath, Mysuru-570018, having GSTIN 29AABCY2333C1ZL have filed an application for Advance Ruling under Section 97 of CGST Act, 2017 read with rule 104 of CGST Rules, 2017 and Section 97 of KGST Act, 2017 read with Rule 104 of KGST Rules, 2017, in FORM GST ARA-01 discharging the fee of Rs.5,000/- each under the CGST Act and the KGST Act.
2. The Applicant is a Private Limited Company registered under the provisions of Central Goods and Services Tax Act, 2017 as well as Karnataka Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act and KGST/SGST Act respectively). The Applicant is an integrated Custom Research and Manufacturing Services (CRAMS) provider offering single point access to discovery services, CPRD (Chemical Process Research and Development), drug production development & regulatory support services and also pharmaceutical technologies to global pharma and Biotech Companies.
3. The applicant has sought advance ruling in respect of the following questions:-
i. Whether on reimbursement of expenses at actual cost which are incurred by the employee staffs on behalf of Company is liable to tax?
ii. Whether Reverse Charge Mechanism is applicable on reimbursement of expenses paid on behalf of the Company at actuals which are incurred by the employee staff who is also a whole-time director Company?
iii. Whether-
a. time limit prescribed to take input tax credit under the Section 16(4) of the GST Act, 2017 applies only for the invoice or debit note for the supply of goods or services or both or it shall also applies to invoice issued in accordance with the provisions of clause (f) of sub-section (3) of Section 31 i.e., self-invoices by registered person who is liable to pay tax under sub-section (3) or sub-section (4) of section 9 (under reverse charge mechanism).
b. Tax paid during current financial year under reverse charge mechanism as per sub-section (3) or sub-section (4) of section 9 for any of the previous financial year transaction, input tax credit on such payment of tax would be availed in the year of payment or in the year in which transaction happened.
iv. If answer to the Question 1 and Question 2 is affirmative, whether reverse charge is to be calculated on values including GST or excluding GST.
4. Admissibility of the application:The question is about the “determination of the liability to pay tax on any goods or services or both” and hence is admissible under Section 97(2)(e) of the CGST Act 2017.
5. BRIEF FACTS OF THE CASE:The applicant furnishes some facts relevant to the issue:
5.1 The applicant states that they are integrated Custom Research and Manufacturing Services (CRAMS) provider offering single point access to discovery services, CPRD (Chemical Process Research and Development), drug production development & regulatory support services and also pharmaceutical technologies to global pharma and Biotech Companies. Company accelerates drug development projects of its partners and clients with technologies, expertise and capabilities to execute pre-clinical programs, CMC (Chemistry, manufacturing and control) for Active Pharmaceutical Ingredient (API) and drug products, and registration solutions for New Chemical Entities (NCEs), 505b2 and orphan drugs.
5.2 The applicant states that they are performing such services which require extensive co-ordination with other research sites / customer sites to attend appropriate meetings (Joint Scientific Review Committee, Steering Committee), supervise studies at third party sites (preclinical and clinical sites), the employees are needed to undertake travel / work from home etc., Company while providing above said services, some of the expenses are incurred by their employees on behalf of the Company, the details of which are as follows:-
i. Domestic Travelling Expenses
ii. Reimbursement of Transportation and Food Expenses.
iii. Boarding and Lodging
iv. Consumables
v. Printing and Stationery
vi. Postal and Courier Charges
vii. Mobile and Telephone Charges etc
The applicant states that employee staff takes all the invoices in the name of the Company along with the Company GSTIN for domestic transaction invoices and company takes input tax credit in respect of eligible transactions. In respect of transactions which attracts reverse charge such as payments to;-
i. Goods Transport Agencies,
ii. Lawyers / advocates
iii. Import of services etc.,
The applicant states that the Company discharges the liability by paying under reverse charge mechanism to government in the cases cited above. Employees incur expenses on behalf of the company in the course of employment and the said amounts are reimbursed by the company on periodical basis. These expenses are incurred by the company and are only paid by the employee and later reimbursed to the employee by the company.
5.3 This office had addressed a letter to the Assistant Commissioner of Commercial Taxes, LGSTO-190, Mysuru on 28-04-2022 to file comments on the application filed. In response to this, the ACCT has furnished comments as below:-
“1. Whether on reimbursement of expenses at actual cost which are incurred by the employee staff on behalf of company is liable to tax?
As per the information furnished by the applicant, the applicant Company is the Employer, who reimbursed the expenses incurred by its employee staff
Employee staff of the Company has availed various types of services from different vendors. Vendors of supply of services charged tax on the Company and also issued Tax invoice in the name of the Company as per the provisions specified under section 31(2) and 31(3)(f) of the KGST Act 2017 as per the information furnished in the application.
As per sub section (105) of section 2 of the KGST Act 2017, the definition of “supplier” is as under:-
“in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied;”
As per sub section (93) of section 2 of the KGST Act 2017 the definition of “Recipient” is as under:-
“Recipient” of supply of goods or services or both, means :-
(a) Where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;
(b) Where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and
(c) Where no consideration is payable for the supply of a service, the person to whom the service is rendered
and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or service or both supplied;”
Similarly Scope of supply is envisaged in section 7 of the KGST Act 2017 as under:-
1. For the purpose of this Act, the expression “supply” includes –
(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course of furtherance of business;
(b) import of services for a consideration whether or not in the course or furtherance of business;
(c) the activities specified in Schedule I, made or agreed to be made without a consideration;
2. Notwithstanding anything contained in sub-section (1),-
(a) activities or transactions specified in Schedule III; or
(b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.
3. Subject to the provisions of sub-sections (1) and (2), the Government may on the recommendations of the Council, specify, by notification, the transactions that are to be treated as –
(a) a supply of goods and not as a supply of services; or
(b) a supply of services and not as a supply of goods.
In view of the said provision, as per my knowledge this service is taxable under KGST ACT 2017.
2. Whether Reverse Charge Mechanism is applicable on reimbursement of expenses paid on behalf of the company at actual which are incurred by the employee staff who is also a whole-time director of the Company?
From the information furnished by the applicant, it is found that the employee staff is also a whole time director of the Company incurs expenses on behalf of the company. Company authorised by its board resolution for remuneration and reimbursement of expenses and the said amounts are reimbursed by the company on periodical basis. These expenses are incurred by the company and are only paid by the employee director and after reimbursed to the employee director by the company.
Further the applicant has informed that as reimbursement of expenses does not forms part of Salaries or perquisites and is not subject to TDS under section 194J of the IT Act, then that all the activities performed by the director are in the course of employer-employee relation (i.e a “Contract of service”) and reverse charge is not applicable on said transaction.
As per information furnished by the applicant, the word “expenses paid” is neither categorized “under salary” nor “other than the salary”. If it comes under the definition of Salary then, as per SL No 5.3 of Circular No.140/10/2020 Central Tax (Rate) dated 10.06.2020 it is clarified as under:
5.3 . Accordingly, it is clarified that the part of Director’s remuneration which are declared as “Salaries” in the books of a company and subjected to TDS under Section 192 of the IT Act, are not taxable being consideration for services by an employee to the employer in the course of or in relation to his employment in terms of Schedule III of the CGST Act, 2017.
The word “expenses paid”, if it comes under the definition of “other than the salary” then as per SI No. 5.4 of Circular No 140/10/2020 Central Tax (Rate) dated 10.06.2020, it is clarified as under:
5.4 It is further clarified that the part of employee Director’s remuneration which is declared separately other than “salaries” in the Company’s accounts and subjected to TDS under section 194J of the IT Act as Fees for professional or Technical services shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and is therefore, taxable. Further, in terms of notification No. 13/2017 – Central Tax (Rate) dated 28.06.2017, the recipient of the said services i.e. the Company, is liable to discharge the applicable GST on it on reverse charge basis.
In view of the above, as per my knowledge, “expenses paid” as informed by the applicant, if it is coming under the definition of “Salary” then it is not a taxable service and if it is coming under “other than the Salary” then as per circular No 13/2017- Central Tax (Rate) dated 28.06.2017, the company is liable to discharge the applicable GST on it on reverse charge basis.
3. Whether
a. Time limit prescribed to take input tax credit under the section 16(4) of the GST Act, 2017 applies only for the invoice or debit note for the supply of goods or service or both or it shall also applies to invoice issued in accordance with the provisions of clause (f) of sub section (3) of Section 31 i.e self invoices by registered person who is liable to pay tax under sub section (3) or sub section (4) of section 9 (under reverse charge mechanism)
b. Tax paid during current financial year under reverse charge mechanism as per sub section (3) or sub section (4) of section 9 of any of the previous financial year transaction, input tax credit on such payment of tax would be availed in the year of payment or in the year in which transaction happened
For the above point, as per my knowledge, Time of supply of service & date of payment, date of invoice and required document and condition for claiming input tax credit, are very much relevant to this.
Regarding Time of supply, Section 13(3)(a) specifies that:
” in case of supplies in respect of which tax is paid or liable to be paid on reverse charge basis, the time of supply shall be the earlier of the following dates namely:
(a) The date of payment as entered in the books of account of the recipient or the date on which the payment is debited in his bank account, whichever is earlier;
Regarding date of Invoice, Section 31(3)(f) specifies that:
“a registered person who is liable to pay tax under sub section (3) or sub section (4) of section 9 shall issue an invoice in respect of goods or services or both received by him from the supplier who is not registered on the date of receipt of goods or services or both”
Regarding required document and condition for claiming input tax credit, Rule 36(1 )(b) specifies that:
“The input Tax credit shall be availed by a registered person, including the Input Service Distributor, on the basis of any of the following documents namely:
(b) an invoice issued in accordance with the provisions of clause (f) of sub section (3) of section 31, subject to the payment of tax”
In view of the above, as per my knowledge, time limit for availing input tax credit under reverse charge mechanism is date of payment as entered in the books of accounts of the recipient or the date on which the payment debited in his bank account whichever is earlier”.
6. Applicant’s Interpretation of Law:
6.1 The applicant with reference to question (i) is of the view that the term “consideration” in relation to the supply of goods or services or both is defined in clause (31) of Section 2 of the Central Goods and Service Tax Act, 2017 as under:-
“(31) “Consideration” in relation to the supply of goods or services or both includes –
(a) any payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government.
(b) the monetary value of any act or forbearance, in respect of in response to, or for the inducement of, the supply of goods or services or both, whether by the recipient or by any other person but shall not include any subsidy given by the Central Government or a State Government.
Provided that a deposit given in respect of the supply of goods or services, or both shall not be considered as payment made for such supply unless the supplier applies such deposit as consideration for the said supply.
The amount paid by the employee to the supplier of service is covered under the term “consideration” as if it is paid by the company itself for the services received by them on behalf of the company. This amount reimbursed by the company to the employee later would not amount to consideration for the supplies received as the services of the employee to his employer in the course of his employment is not a supply of goods or supply of services and hence the same is not liable to tax.
6.2 The applicant with reference to question (ii) is of the view that Notification No. 13/2017 Central Tax (Rate) dated 28.06.2017 states that “on categories of supply of services mentioned in column (2) of the Table below, supplied by a person as specified in column (3) of the said Table, the whole of central tax leviable under section 9 of the said Central Goods and Services Tax Act, shall be paid on reverse charge basis by the recipient of such services”. The notification is issued under Section 9(3) of the CGST Act, 2017. Entry 6 of the said Notification reads as under.
