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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 ..... erred 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 of sub-section (3) of Section 31 i.e., self-invoices by registered person who is liable to pay tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny 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 reimbur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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 incu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... put 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 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. 4.3 Accordingly, it is hereby clarified that the remuneration paid to such independent directors, or those directors, by whatever name called who are not employees of the said company, 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 ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless, - (a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed. Such 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 docu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s involved on which advance ruling is sought by the applicant and the relevant facts along with the arguments made by their authorized representative and also their submissions made during the time of hearing. 10. 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. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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. 13.2 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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