Order date – 02 December 2022

Facts –

• The Applicant M/s Yaadvi Scientific Solutions Private Limited, is an integrated Customs Research and Manufacturing Services (CRAMS) provider offering single point access to discovery services, CPRD, drug production development & regulatory support services and also pharmaceutical technologies to global pharma and biotech Companies.
• Performing such services require extensive co-ordination with other for which employees incur some expenses and the said amounts are reimbursed by the company on a periodical basis. These expenses are incurred by the company and are only paid by the employee and later reimbursed to the employee by the company.

Issue –

• Whether on reimbursement of expenses at actual cost which are incurred by the employee staffs on behalf of Company is liable to tax? 
• Whether Reverse Charge Mechanism is applicable on reimbursement of expenses paid on behalf of the company at actual cost which are incurred by the employee staffs on behalf of Company who is also an employee of the company?

Order –

• The AAR finds that services by an employee to the employer in the course of or in relation to his employment are covered under Clause 1 to Schedule III which relates to the activities or transactions which shall be treated as neither as a supply of goods nor as a supply of services. Hence the services provided by the employee of the applicant to the applicant are not supply.
• It also states that as per the Circular No: 140/10/2020 dated 10.06.2020 clarifies about the leviability of GST on remuneration paid by the companies to the Directors, who are also an employee of the said company, only part of employee Director’s remuneration which is declared separately other than “Salaries” accounts and subjected to TDS under Section 194J of the IT Act shall be treated as consideration for providing services which are outside the scope of Schedule III of the CGST Act 2017 and hence taxable under reverse charge basis.
• Hence Reverse Charge Mechanism is not applicable on reimbursement of expenses at actual cost, to a whole-time director of the company who is also an employee of the company. As per Section 15(2) of the CGST Act 2017, reverse charge is to be calculated on the gross consideration paid or payable to the supplier, i.e., value excluding GST.