2019 (10) TMI 793 - AAR - GST

Tax Ruling: Staff Expenses Not Taxable, Director Remuneration Subject to Tax

The consultancy company's request for an advance ruling on the tax liability of staff expenses exceeding a specified amount, later reimbursed, was ... Services in the course of employment (Schedule III clause 1) - reimbursement of expenses not constituting consideration for supply - definition of consideration under Section 2(31) - reverse charge under Section 9(3) of the CGST Act - services supplied by a director to the company liable under Notification No. 13/2017 (Entry 6)Services in the course of employment (Schedule III clause 1) - reimbursement of expenses not constituting consideration for supply - definition of consideration under Section 2(31) - Whether expenses incurred by staff on behalf of the company and reimbursed periodically are liable to tax - HELD THAT: - The Authority found that employees incur expenses on behalf of the applicant in the course of employment and are subsequently reimbursed. Services rendered by an employee to his employer fall within clause (1) of Schedule III and are neither a supply of goods nor a supply of services. The statutory definition of consideration treats payments made by an agent on behalf of a principal as payments by the principal; accordingly amounts paid by employees to third-party suppliers for services received on behalf of the company are to be regarded as applicant's expenses paid through employees. Consequently reimbursement by the applicant to its employees does not constitute consideration for a taxable supply by the employee and is not liable to GST under the Act, subject to the qualification that tax, if any, is on the underlying supply availed of in fact by the company irrespective of whether initially paid by employee or applicant. [Paras 4]Reimbursements to employees of expenses incurred in the course of employment are not liable to GST as a supply by the employee to the employer.Reverse charge under Section 9(3) of the CGST Act - services supplied by a director to the company liable under Notification No. 13/2017 (Entry 6) - Whether reverse charge is applicable on remuneration paid to Directors - HELD THAT: - Directors are not employees of the company; services provided by directors to the company do not fall within clause (1) of Schedule III. The director is the supplier and the company is the recipient. Notification No. 13/2017 issued under Section 9(3) specifically covers services supplied by a director to the company (Entry 6), thereby attracting whole of central tax under reverse charge payable by the recipient. On these facts, remuneration paid to directors for services rendered to the applicant company is exigible to tax on reverse charge basis in the hands of the company. [Paras 5]Remuneration paid to the Director is liable to GST under reverse charge mechanism in the hands of the applicant company.Final Conclusion: The Authority ruled that (i) periodic reimbursement by the company to its employees of expenses incurred by them in the course of employment is not a taxable supply by the employees and therefore not liable to GST, and (ii) remuneration paid to directors for services rendered to the company is taxable under the reverse charge mechanism as covered by Notification No. 13/2017 (Entry 6). Issues:1. Whether expenses incurred by staff members exceeding a certain limit and then reimbursed periodically are liable to taxRs.2. Whether reverse charge mechanism (RCM) is applicable on remuneration paid to directorsRs.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.