Treatment of reimbursement of expense under GST

Treatment of reimbursement of expense under GST

Relevant provision of the GST Act & Rules

1. Section 7(1) of CGST Act: Reimbursement is supply or not.

2. Section-15- Value of supply

3. Rule-33 of CGST Rule : Value of supply of services in case of pure agent.

4. How to show in GSTR-1

5. Sec 2(47) of CGST Exempted supply

6. Sec 2(78) of Non-taxable supply

Lets we start with an illustration as given under rule-33 of CGST Rule 2017

Situation -1	Situation-2
If a professional took a assignment for pleading a case before Income tax authority. Sr.No Particular Amount 1. Professional Fee 100000.00 2. Travelling      & Hotel Expense( Actual bill)   15000.00 3. Third       Party expert opinion( Actual-10000)   25000.00 4. Total 140000.00	If a professional took a assignment for pleading a case before Income tax authority. Sr.No Particulars Amount 1. Professional                       Fee (Consolidated Fee)   1,40,000.00 2. Total 1,40,000.00

Now we will elaborate the provisions of GST Law.

Section 7(1) of CGST Supply: the expression “supply” includes–

♦ all forms of supply of goods or services or both

♦ made or agreed to be made

♦ for a consideration (Sec,2(31) of CGST Act)

♦ by a person (Section 2(84) of CGST Act)

♦ in the course or furtherance of business; (Sec.2(17) of CGST Act )

Analysis:  

So if we look into the reimbursement of expense incurred on behalf of the service recipient and claim of those expense, will be considered as consideration received in the course or furtherance of business and this satisfied the five essential condition of supply.

Now we will move into the next step what would be “value of supply”.

Section-15. (1) The value of a supply of goods or services or both shall be

– the transaction value,

– which is the price actually paid or payable

– for the said supply of goods or services or both

– where the supplier and the recipient of the supply are not related and

– the price is the sole consideration for the supply.

Further Section 15 (2) says that the above value of supply shall include –

a- any taxes, duties, cesses, fees and charges levied under any law other than GST Act

b- any amount that the supplier is liable to pay but incurred by recipient and not included while deciding sole consideration of supply.

c- Any incidental expenses charged by supplier at the time of, or before delivery of goods or supply of services

d- interest or late fee or penalty for delayed payment of consideration

e- subsidies directly linked to the price

– excluding subsidies provided by the CG and SG.

Further Again Section 15 (4) CGST Act says that-

– where the value of the supply of goods or services or both cannot be determined under sub-section (1),

– the same shall be determined in such manner as may be prescribed.( It means if the value of supply is not sole consideration then refer CGST rules)

Analysis of section 15(1):

The transaction value of supply must be decided on the below factor

– Transaction must fall under the definition of supply

– Price is actually paid or payable

– Supplier and recipient are not related party and

– The price is sole consideration  for such supply

If the above conditions are not satisfied, then we will refer to the valuation rules under CGST rules. Which are as under.

Rule 33 of CGST Rule: Value of supply of services in case of pure agent.-

– Notwithstanding anything contained in the provisions of this Chapter,

– the expenditure or costs incurred by a supplier as a pure agent of the recipient of supply shall be

– excluded from the value of supply,

if all the following conditions are satisfied, namely,-

(i) the supplier acts as a pure agent of the recipient of the supply,

• when he makes the payment to the third party on authorisation by such recipient;

(ii) the payment made by the pure agent on behalf of the recipient of supply

• has been separately indicated in the invoice
• issued by the pure agent to the recipient of service; and

(iii) the supplies procured by the pure agent

• from the third party as a pure agent of the recipient of supply
• are in addition to the services he supplies on his own account.

Explanation.– For the purposes of this rule, the expression ―pure agent means a person who–

• enters into a contractual agreement with the recipient of supply to act as his pure agent to incur expenditure or costs in the course of supply of goods or services or both;
• neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure agent of the recipient of supply;
• does not use for his own interest such goods or services so procured; and
• receives only the actual amount incurred to procure such goods or services in addition to the amount received for supply he provides on his own account.

Now we analyse the above example:

Situation -1

Situation-2

If a professional took an assignment for pleading a case before Income tax authority. Sr.No Particular Amount Remarks 1. Prof-essional Fee 1,00,000.00 As per Section -7 & 15 this is Cha-rgeable to GST 2. Travelling & Hotel 15,000.00 Rule-33   and Expla-nation thereof says that

If a professional took an assignment for pleading a case before Income tax authority. Sr.No Particulars Amount Remarks 1. Professional Fee (Conso-lidated Fee) 1,40,000.00 Consoli-dated  invoice and GST is to be charged on full amount 2.  Total 1,40,000.00 Conclusion: when a pure agent procures any goods/service from the third party, he shall collect the actual expenses he has incurred. Any margin charged on the amount as availed from the third party shall disqualify to be called as pure agent transaction. if the Corporate service firm charges extra for which is not actual reimbursement of expense on behalf of his client then such transaction shall be subject to GST.

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