Levy of tax on reimbursements under GST - A Fresh Look

Dear Mr.Sivakumar

Sec.15(2)(c) of the CGST Act makes it clear that the value of supply shall include incidental expenses 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. That should be sufficient to justify the validity of rule 33.

K.S.NAVEEN KUMAR, ADVOCATE

ks naveen kumar 15/03/2018

 

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Shikher Singh 15/03/2018

 

Dear Mr Naveen,

The issue is whether the term 'incidental expenses' would also include reimbursements. From an accounting perspective, in the books of the outward supplier/service provider, claim for reimbursements are normally routed thro' the balance sheet and are treated as current liabilities. Moreover, incidental expenses can cover only those that are incurred 'in respect' of the supply of goods or services or both. Reimbursements are often not directly linked to the supply unlike costs. Hence, the constitutional challenge to the GST Rules that specify that reimbursements are to be included in the value of the service/supply except in respect of 'pure agents', on the basis that these Rule are ultra vires the statutory provisions de the same, is equally valid under the GST law, in my humble view. The Central Government could have specifically mentioned the term 'reimbursible expenditure' in Section 15 of the CGST Act, as they did, while inserting the Explanation to Section 67(4) of the Finance Act, 1994, in order to avoid a similar challenge under the GST law.

Sivakumar

SUBRAMANI SIVAKUMAR 15/03/2018