2019 (10) TMI 793 - AAR - GST

Levy of GST - expenses incurred by the Staff members on behalf of the Company exceeding ₹ 5000-00 a day and then reimbursed periodically - Applicability of Reverse charge mechanism on remuneration paid to the Directors. HELD THAT - The amount paid by the employee to the supplier of service is covered under the term consideration as if it is paid by the applicant himself for the services received by them on behalf of the company. This amount reimbursed by the applicant to the employee later on 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. Remuneration to the Directors paid by the applicant - HELD THAT - The question before us is not whether this service is taxable or not, but whether this supply of services is liable to tax under reverse charge mechanism. The services provided by the Directors to the Company are not covered under clause (1) of the Schedule III to the Central Goods and Services Tax Act, 2017 as the Director is not the employee of the Company. The consideration paid to the Director is in relation to the services provided by the Director to the Company and the recipient of such service is the Company as per clause (93) of section 2 of the CGST Act and the supplier of such service is the Director. Reverse Charge Mechanism - HELD THAT - In the present case, the applicant is the company and is located in the taxable territory and the Directors remuneration is paid for the services supplied by the Director to the applicant company and hence the same is liable to tax under reverse charge basis under section 9(3) of the Central Goods and Services Tax Act, 2017.

Summary

Issues:
1. Whether expenses incurred by staff members exceeding a certain limit and then reimbursed periodically are liable to tax?
2. Whether reverse charge mechanism (RCM) is applicable on remuneration paid to directors?

Analysis:
Issue 1:
The applicant, a consultancy company, sought an advance ruling on whether expenses exceeding a specified amount incurred by staff members and later reimbursed are taxable. The Authority examined the nature of these expenses and determined that services provided by employees to the employer in the course of employment do not constitute a supply under Schedule III of the CGST Act. The consideration for such expenses, reimbursed by the company, does not amount to a taxable supply. The reimbursement does not qualify as consideration for supplies received, making it not liable to tax. The ruling clarified that any applicable tax is on services received by employees, regardless of payment responsibility.

Issue 2:
Regarding remuneration paid to directors, it was established that services provided by directors to the company do not fall under Schedule III as directors are not employees. The consideration paid to directors for their services is subject to tax under the reverse charge mechanism. Notification No. 13/2017 - Central Tax (Rate) specifies that services supplied by a director to the company fall under reverse charge basis, obligating the recipient company to pay central tax. The ruling emphasized that the tax liability on director's remuneration under reverse charge mechanism is applicable as per the relevant notification.

The judgment highlighted the uniformity of provisions between the CGST Act and KGST Act unless specifically stated otherwise. It concluded that the rulings under the CGST Act are equally applicable to the KGST Act and IGST Act due to similar provisions. In summary, the ruling determined that reimbursement of staff expenses is not taxable, while remuneration paid to directors is subject to tax under the reverse charge mechanism.