The Authority of Advance Ruling ( AAR ) in Karnataka has ruled that, the amounts paid to the employees of the applicant company as reimbursement of expenses incurred by them in the course of employment of the applicant company are not liable to tax under the provisions of the Goods and Services Tax Act, 2017 as the transaction of the services supplied by a supplier to the employee and paid by the employee is liable to tax after 30.09.2019.
The AAR also ruled that, the remuneration paid to the Director of the applicant company is liable to tax under reverse charge mechanism under sub-section (3) of section 9 in the hands of the applicant company as it is covered under entry no. 6 of Notification No. 13/2017- Central Tax (Rate) dated 28.06.2017.
The applicant has been examined and its found that the applicant’s employees incur expenses on behalf of the company in the course of employment and the said amounts are reimbursed by the applicant on a periodical basis. These expenses are incurred by the applicant and are only paid by the employee and later on reimbursed to the employee by the applicant. The issue is whether the amount paid as reimbursement of the expenses paid by the employee amounts to supply liable to tax.
Services by an employee to the employer in the course of 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 applicant to the applicant are not a supply. Further, the expenses incurred by the employees are expenses of the applicant and the consideration is payable by the applicant himself and later on reimbursed by the applicant.
The AAR observed 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. However, if any tax is applicable, it is on the services received by the employee on behalf of the applicant in the course of his employment, irrespective of the fact that it is paid by the applicant or the employee and later reimbursed by the applicant”.
Regarding the remuneration to the Directors paid by the applicant, 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.Subscribe Taxscan AdFree to view the Judgment