Reimbursement of expenses by subsidiary to holding company taxable under GST law

The Authority for Advance Ruling held that the reimbursement of expenses from the Subsidiary Company to its Ultimate Holding Company constitutes a taxable supply of services under GST law. The applicant is liable to pay IGST at the rate of 18% on the reimbursement of credit card expenses to the Ultimate Holding Company under the reverse charge mechanism.

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Issues Involved:
1. Whether GST is leviable on the reimbursement of expenses from the Subsidiary Company to its Ultimate Holding company located in a foreign territory outside India.
2. If GST is leviable, what is the rate of GST applicable to the said reimbursement of expensesRs.

Detailed Analysis:

Issue 1: GST Leviability on Reimbursement of Expenses

The applicant, engaged in software development for ICU Medical Inc. (Ultimate Holding Company), uses credit cards provided by Wells Fargo Bank for business-related expenses. ICU Medical Inc. settles these expenses with Wells Fargo and invoices the applicant for reimbursement. The applicant argues that these reimbursements do not constitute a "supply" under GST law as they are merely logistical arrangements without any element of income or consideration, citing various case laws to support this interpretation.

However, the Authority for Advance Ruling (AAR) examined the contractual and operational details, noting that ICU Medical Inc. bears financial and legal obligations for the credit cards. The cards are issued for business purposes, and the applicant reimburses ICU Medical Inc. for these expenses. The AAR concluded that this arrangement constitutes a "service" under Section 2(102) of the CGST Act, as it involves consideration for the use of credit cards provided by ICU Medical Inc. to the applicant's employees for business purposes. Thus, the transaction qualifies as a "supply" under Section 7 of the CGST Act.

Issue 2: Applicable GST Rate

Having established that the transaction is a supply of services, the AAR classified it under SAC 997113, which includes "credit-granting services." This classification covers various forms of credit services, including those extended through credit cards for business-related expenses.

According to Notification 10/2017-Integrated Tax (Rate) dated 28.06.2017, services supplied by a person located in a non-taxable territory to a person in a taxable territory are subject to IGST on a reverse charge basis. The applicable rate of IGST for financial and related services, as per Sl.No.15 of Notification 08/2017-Integrated Tax (Rate) dated 28.06.2017, is 18%.

Ruling:
1. Leviability of GST: The applicant is liable to pay IGST on the reimbursement of credit card expenses to ICU Medical Inc. under the reverse charge mechanism.
2. Rate of GST: The applicable rate of IGST is 18%.

Conclusion:

The AAR ruled that the reimbursement of expenses from the Subsidiary Company to its Ultimate Holding Company constitutes a supply of services under GST law, subject to IGST at the rate of 18% on a reverse charge basis.

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