GST implications on Hotel Reimbursements by foreign company

karan jit singh | Last updated: 14 November 2020

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This article discusses the Goods and Services Tax (GST) implications when a foreign company arranges hotel accommodation in a foreign country for employees of an Indian entity and then invoices the Indian entity for reimbursement. It highlights the potential dispute from GST authorities who might consider the foreign entity as providing accommodation arrangement services, requiring the Indian entity to pay tax under Reverse Charge Mechanism (RCM). The article also touches upon the risk of claiming input tax credit on such services, especially if related to immovable property outside India, and references judicial pronouncements that could support the Indian entity's position.

Many times we see that foreign entity booked accommodation in hotel in foreign country for employees of Indian entity and Foreign entity charged the amount to Indian entity by raising reimbursement invoice. Generally, Indian entity don't pay tax under RCM on said invoice considering the POS of service falling outside India. It may be noted that foreign entity doesn’t possess license / approval of provision of accommodation / Hotel services, foreign entity may considered as providing arrangement of accommodation in hotel service or like a travel agent by GST authorities. In such a case authorities may dispute Indian entity not paying tax on such inward supplies.

Taking a conservative stance Indian entity may pay tax under RCM and take credit.

GST on Hotel Reimbursements: Foreign Company Invoices

Now the another question pop out from this that as other story of the coin the taking credit may be risky also as department can challenge on Input by taking the stance that same is related to immovable property and such immovable property is located outside India.

To resolve this I would like to draw your attention on the grounds laid out by various judicial pronouncements. The Hon’ble CESTAT, Mumbai determined the place of provision of the service rendered by the Service provider located in non taxable territory and held that the Insurance auxiliary services provided by the insurance agents in the non taxable territory were not taxable and therefore, the Appellant was not liable to pay Service tax͘. Further, the Hon’ble Tribunal relied upon the decisions in the case of Mahalakshmi Textile and Nitco Tiles and held that the Cenvat credit taken by the Appellant is nothing but refund of the Service tax paid by them on the services on which they were not required to pay Service tax and the same cannot be denied (reference Bajaj Allianz General Insurance 2014- TIOL- 1540-CESTAT-MUM.

FAQ :

The main issue is whether the Indian entity is liable to pay GST under the Reverse Charge Mechanism (RCM) on the reimbursement invoice raised by the foreign company for hotel accommodation provided outside India.

GST authorities might argue that the foreign entity is providing an arrangement for accommodation or acting like a travel agent, making the service taxable in India, thus requiring the Indian entity to pay tax under RCM.

The risk is that tax authorities might challenge the input tax credit claim, arguing that the services relate to immovable property located outside India, which may not be eligible for credit.

Taking a conservative stance, the article suggests that the Indian entity may choose to pay tax under RCM and then attempt to claim the credit.

Judicial pronouncements, such as the CESTAT, Mumbai decision, have indicated that certain services provided by entities in non-taxable territories might not be taxable in India, and credit taken on such services may not be denied.

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