No GST on Reimbursement of Expenses incurred by Employees on behalf of Company: AAR [Read Order]

The Karnataka Authority of Advance Ruling (ARR), ruled that the reimbursement of expenses at actual cost which are incurred by the employees on behalf of the company is non taxable under Goods and Services Tax Act, 2017 since it comes under the ambit of Schedule III of Central Goods and Services Tax Act.

The applicant company, M/s Yaadvi Scientific Solutions Private Limited, submitted an application to the authority stating that for the domestic transaction invoices, the employee acknowledges all invoices in the company's name along with the Company GSTIN and the applicant business claims Input Tax Credit for qualifying transactions.

This applicant also maintained that by paying the government using the Reverse Charge Mechanism, the Company releases itself from its obligation. The company periodically reimburses the employees for the expenses they incurred while working for the company. The issue concerned is whether tax be paid on such expense reimbursement.

The authority bench of  members M. Ravi Prasad and Kiran Reddy T. observed that the services by an employee to the employer in the course or in relation to his employment are covered under Clause 1 of the Schedule III which relates to the activities or transactions which shall be treated neither as a Supply of Goods nor as a Supply of Services. Hence, the services provided by the employees of the company to the company is not a supply.

The authority relied and interpreted the definition of “consideration” mentioned under the Section 2(31) of the Central Goods and Services Tax Act. It was remarked that the amount paid by the employee to the supplier of service represents the amount paid 'by any other person' 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.

Further, the 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 in his course of his employment is not a supply of goods or services in terms of Clause 1 of the Schedule III of the Central Goods and Services Tax Act and hence the same is not liable to tax.

To Read the full text of the Order CLICK HERE

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