Reimbursements not taxable under GST Law

Dear Article writers did you missed to read section 15(2)(c) c) which specifically includes
"incidental expenses, including commission and packing, charged by the supplier to the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of goods or services or both at the time of, or before delivery of goods or supply of services;"
in the value of supply or you intentionally ignored this clause just for the sake of writing an article.

deepak joshi 04/05/2017

 

Dear Mr Joshi

If you read Section 67 and especially the amendment in terms of the explanation that was inserted in the said section wef 14-5-2015, the words ‘ reimbursable expenditure or cost’ were specifically mentioned, to get over the impact arising out of the decision rendered in Intercontinental Consultants. Moreover, in In Rule 5 of Valuation rules, there is a mention of all costs or expenditure incurred in relation to the provision of the service being included.

Reimbursable expenditure is a much wider term as compared to the term 'incidental expenses' and will go beyond the concept of incidental expenses. A typical example is the case of expenses incurred by the Parent Company and recovered from the Group company or companies, on a back to back to back basis. These are reimbursements and would not be taxable even under the GST law. Section 15(5)(c)(c)will not cover this transaction.

In the absence of a statutory mention of reimbursable expenditure in the GST Act on lines similar to Section 67 of the Finance Act, 1994, levy of GST on reimbursements is going to be difficult, especially given the fact that the Supreme Court has upheld the Intercontinental decision.

What is more interesting is the fact that, while the first model law did cover reimbursable expenditure, the second model law and the CGST Act have conspicuously dropped these words, to the huge benefit of Industry.

S Sivakumar
Advocate
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04/05/2017