Reimbursements to employees for business purposes whether liable to reverse charge u/s 9(4) of CGST ACT, if the supply of goods/service is from an unregistered person.
Section 9(4) of CGST Act, 2017 provides that a registered person will be liable to [GST on reverse charge] if he receives supply of goods/services from unregistered person.
Issue :Employee consumes services/goods on behalf of his company from an unregistered person
In case, an employee consumes services/goods on behalf of his company from an unregistered person and claims reimbursement from the company as it is a business expense, then, in such cases it appears that the services/goods are consumed by the Company (registered person) through its employees from an unregistered person. Therefore section 9(4) will get invoked and company will be liable to GST on reverse charge.
As per the concept of [Reverse Charge Mechanism], where the supply has been made by unregistered dealer to the registered dealer, the onus of discharging the tax liability under RCM shall be on registered recipient. Therefore, in order to confirm the tax liability of GST, it is mandatory to determine the the recipient and the registration status of the recipient of the goods / services.
The actual recipient of the goods / services is determined as below :
“(93) “recipient” of supply of goods or services or both, means—
where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;
where no consideration is payable for the supply of goods, the person to whom the goods are delivered or made available, or to whom possession or use of the goods is given or made available; and
where no consideration is payable for the supply of a service, the person to whom the service is rendered,
and any reference to a person to whom a supply is made shall be construed as a reference to the recipient of the supply and shall include an agent acting as such on behalf of the recipient in relation to the goods or services or both supplied;”
As per the above definition, it can be construed that employer can be considered as recipient as employee can always be said to be an ‘agent’ of his employer. Hence reverse charge is applicable on reimbursements to employees if supply of goods/services taken from unregistered person
It is suggested that a suitable clarification be provided if tax under reverse charge is payable on following reimbursements for business purposes if taken from unregistered dealers
- a) Conveyance of Employees through local conveyances like Taxi etc.
- b) Food Expenses
- c) Expenses for other goods/services consumed by the employee on company's behalf
Reimbursement of expense for which invoice is issued in the name of employee
As per Schedule III of the CGST Act, 2017 services by an employee to the employer in the course of or in relation to his employment are treated neither as a supply of goods nor a supply of services
There may arise many instances wherein an employee is reimbursed by his employer for expenses incurred by an employee during course of employment but for which a bill is issued in the name if the employee. For example. Mr. A hires a cab while on a tour for company work and makes the payment for the same. The bill is issued in name of Mr. A and company reimburses the amount so borne by Mr. A. This reimbursement is not a part of Mr. A’s salary. The taxability of such transactions need to be clarified.
It is suggested that there be provided a suitable clarification regarding taxability of reimbursements made by an employer to the employee when the bill for a service etc. is issued in the name of that employee.