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TMI Blog2022 (12) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... and is therefore covered under the term consideration paid by the applicant to the service provider for the services received by the employees 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 in terms of clause 1 of the Schedule III of the CGST Act, 2017 and hence the same is not liable to tax. A director who has taken an employment in the company may be functioning in dual capacities, namely, one as a director of the company and the other on the basis of the contractual relationship of master and servant with the company (employment). As per the circular only 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 shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and hence taxable under reverse charge basis. Hence Reverse Charge Mechanism is not applicable on reimburseme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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. SI.No. Category of Supply of Services Supplier of Service Recipient 1 2 3 4 6 Services supplied by a director of A director of a company or a body corporate a company or a body corporate to the said company or the body corporate The Company or a body corporate located in the taxable territory Further Central Board of Indirect Taxes and Customs ( CBIC ) in its Circular No: 140/10/2020 - GST dated 10.06.2020 has issued clarification in respect of levy of GST on Director s remuneration - Reg same is reproduced below: 2. The issue of remuneration to directors has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, is taxable in hands of the company, on reverse charge basis. Leviability of GST on remuneration paid by companies to the directors, who are also an employee of the said company 5.1 Once, it has been ascertained whether a director, irrespective of name and designation, is an employee, it would be pertinent to examine whether all the activities performed by the director are in the course of employer-employee relation (i.e. a contract of service ) or is there any element of contract for service . The issue has been deliberated by various courts and it has been held that a director who has also taken an employment in the company may be functioning in dual capacities, namely, one as a director of the company and the other on the basis of the contractual relationship of master and servant with the company, i.e. under a contract of service (employment) entered into with the company. 5.2 It is also pertinent to note that similar identification (to that in Para 5.1 above) and treatment of the Director s remuneration is also present in the Income Tax Act, 1961 wherein the salaries paid to directors are subject to Tax Deducted at Source (IDS ) under Section 192 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h additional documents are prescribed under Rule 36 RULE 36. Documentary requirements and conditions for claiming input tax credit.- (1) 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.- (a) an invoice issued by the supplier of goods or services or both in accordance with the provisions of section 31; (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; (c) a debit note issued by a supplier in accordance with the provisions of section 34, (d) a bill of entry or any similar document prescribed under the Customs Act, 1962 or rules made thereunder for the assessment of integrated tax on imports; (e) an Input Service Distributor invoice or Input Service Distributor credit note or any document issued by an Input Service Distributor in accordance with the provisions of sub-rule (1) of rule 54. It may be noted RCM self-invoice is not an invoice for supply of goods or services, but an invoice for the receipt, prescribed as eligible documents under clause (b) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om 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. Performing such services require extensive co-ordination with other research sites / customer sites, supervise studies at third party sites (preclinical and clinical sites), the employees are needed to undertake travel / work from home etc. Company provides many of the services but some of the expenses are incurred by their employees on behalf of the Company and the said amounts are reimbursed by the company on periodical basis. 11. The applicant states that employees take 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 with Goods Transport Agencies, Lawyers / advocates and Import of service etc., the Company discharges the liability by paying under reverse charge mechanism. 12. The facts presented by the applicant have been examined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices of the employee to his employer in the course of his employment is not a supply of goods or supply of services in terms of clause 1 of the Schedule III of the CGST Act, 2017 and hence the same is not liable to tax. 13. The Applicant states that whole time director of the company who is also an employee of the company incurs expenses on behalf of the company and the same is late reimbursed to the director by the company. The applicant states that employee director 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 with Goods Transport Agencies, Lawyers / advocates and Import of services etc., the Company discharges the liability by paying under reverse charge mechanism. Now the applicant wants to know whether Reverse Charge Mechanism is applicable on reimbursement of expenses as mentioned above to a whole-time director Company who is also an employee of the company. 13.1 Circular No:140/10/2020 dated: 10.06.2020 clarifies about the leviability of GST on remuneration paid by companies to the directors, who are al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyment in the company may be functioning in dual capacities, namely, one as a director of the company and the other on the basis of the contractual relationship of master and servant with the company (employment). As per the circular only 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 shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act, and hence taxable under reverse charge basis. Hence Reverse Charge Mechanism is not applicable on reimbursement of expenses on actuals, to a whole-time director of Company who is also an employee of the company. 14. The Applicant wants to know whether section 16 (4) of the GST Act, 2017 applies to invoice issued under reverse charge mechanism and also wants to know when can the ITC on payment of tax under RCM be availed. Since these questions are not covered under section 97(2) of the CGST /KGST Act which specifies the questions on which Advance Ruling is sought, the same cannot be answered. 15. The Applicant wants to know whether reverse charge is to be ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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