In re ICU Medical India LLP (GST AAAR Tamilnadu)
Whether GST is leviable on the reimbursement of the subsidiary company to its ultimate holding company located in a foreign territory outside India and In case GST is leviable, what is the GST rate applicable to the said reimbursement of expenses?
The fact of reimbursement does not result in any transaction in its own, as was held by the AAR, but such expenses of employees of appellant through the credit card of the overseas holding company (recipient of the supply of appellant), borne at the first instance by the recipient of the supply is nothing but which the supplier (appellant) was liable to incur and reimbursed are for the only purpose of restoring the appellant company’s accounts to previous position for operational convenience so that the same could be later included in the software development charges invoiced by the appellant to the recipient (overseas holding company). There is indeed an economic rationale for such treatment of expenses as transfer of resources happened between the appellant supplier to its overseas holding company recipient. Such reimbursements as per Section 15 of the GST Act read with sequential application of Rules 28-31 of the GST Rules are to be included in the value of supply and tax is to be paid as per the time of supply provisions applicable to such transactions; as per the admission of the appellant, the same is however being included albeit later in the tax invoice raised by the appellant.
In our opinion, GST is therefore to be paid on such amounts of expenses reimbursed at the time determined as per Section 13 of the GST Act, as it represents the part of consideration received in advance by the appellant from its recipient (notwithstanding that the same is later included in tax invoice of the appellant) and to be paid at the time of reimbursement as by then the actual expenses borne by the recipient is known. Therefore, the first question sought by the appellant is answered in affirmative.
The applicable rate of GST on such expenses incurred by the recipient and reimbursed by the appellant is the same rate at which the appellant charges for the software development service supplied by the appellant to the overseas holding company, on the ground that the expenses are part of the taxable value of such services and attract the same rate indicated in the tax invoice for the software development charges issued by the appellant on the overseas holding company.
FULL TEXT OF ORDER OF APPELLATE AUTHORITY OF ADVANCE RULING, TAMILNADU
At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act and the Tamil Nadu Goods and Service Tax Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the Central Goods and Service Tax Act would also mean a reference to the same provisions under the Tamil Nadu Goods and Service Tax Act.
The subject appeal has been filed under Section 100(1) of the Tamilnadu Goods & Services Tax Act 2017/Central Goods & Services Tax Act 2017 by Tvl. ICU Medical India LLP, (hereinafter referred to as ‘Appellant’. The appellant is registered under GST vide GSTIN 33AAGF13243MIZD. The appeal is filed against the Order No. 23/ARA/2020 dated 04.05.2020 passed by the Tamilnadu State Authority for Advance ruling on the application for advance ruling filed by the appellant.
2.1 As per the Statement of Facts in Annexure A filed along with the Appeal, the Appellant is engaged in the business of Software development for the Infusion system manufactured by its ultimate holding Company ICU Medical Inc., (hereinafter referred to as ‘ICU Inc.’), having its place of business located at USA. ICU Inc., in turn has entered into a Cardholder User agreement with the employees of the Appellant for issuance of Credit Cards. The Credit Cards issued to the employees are meant to be used only for business related expenses within and outside India. (Travel, accommodation in the hotel, food expenses, etc.) The employees of the appellant use the credit card for procuring travel related services for/on behalf of Appellant. In this regard, normally the vendor raises invoice on the Appellant and the Appellant claims eligible credits based on the invoices. In cases where invoices are raised on the employees (e.g. online order of food, cab etc), GST credit is not taken on the same.
2.2 It was stated that the Employees of the appellant submit expenses statement along with supporting documents by 20th of every month for the transactions incurred up to 15th of that month. ICU Inc. downloads and shares the monthly credit card statement with the appellant. The Appellant books the expenses in its books based on the invoices provided by the employees and the credit card statement. Appellant debits the respective expenses account and credits the intercompany payable account. Where Input tax credit is involved, the eligible GST amount will be debited to the GST Input Tax credit account by crediting the expenses Account. Subsequently, ICU Inc. recovers this amount from Appellant. A commercial invoice is raised by ICU Inc. on the appellant for the reimbursement towards payment for expenses incurred by the Appellant. ICU Inc., raises a monthly commercial invoice on the appellant under two categories mentioned below:
