Taxability of Reimbursement under GST
Sometimes supplier incurs some expenditure which afterward gets reimbursed by the customer the amount of which is separately shown on the invoice. Whether such amount is liable to GST or not?
Section 15 of CGST, Act 2017 talks about the value of taxable supplies in two parts-
1. Section 15(1) states that value of supply of goods or services or both shall be Transaction Value i.e.-
- Which is the price actually paid or payable for the said supply of goods or services
- Where the supplier and the recipient of the supply are not related
- Price is the sole consideration
2. Section 15(2) talks about Inclusions in Value of supply:-
- Taxes, duties, cesses, fees and charges except for CGST, SGST, UTGST & GST Compensation cess
- Amount incurred by the recipient on behalf of the supplier
- Incidental expenses and the amount charged for activities done before delivery
- Charges for delayed payment of consideration
After reading the above inclusions we can reach an understanding that-
"Any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply or reimbursed by such recipient and not included in the price actually paid or payable."
Further, we can say that even if the customer makes direct payment of some of such liability (of the supplier) to the third parties, and the supplier does not include the amount in the invoice, it would still form part of the value of supply.
Further "Section 9, Levy and collection can be read as under-
There shall be levied a tax called the Central Goods and Service Tax on all the intra-state supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined u/s 15 and at such rates, not exceeding twenty percent, as may be notified by the Government on the recommendation of the council and collected in such manner as may be prescribed and shall be paid by the taxable person."
The reference of Section 9 makes it clear that GST shall be levied on the value determined u/s 15 and the said section 15 specifically provides inclusion for the amount paid by the recipient and not included in Transaction Value. Hence Reimbursement expenditure would form part of Value of Taxable Supply
Let us understand with the help of examples-
Advalue Advisors has placed an order for supply of certain goods to Mr. Z. As per the contract, Mr. Z is required to deliver goods to the premises of Advalue Advisors. Mr. Z hires a transporter for transportation of the goods. However, the lorry receipt indicates that the freight is payable by Advalue Advisors. In this case, Mr. Z was required to make the payment to the transporter as it was the obligation of Mr. Z to deliver the goods to the premises of Advalue Advisors. As against Mr. Z making the payment to the transporter, the payment is made by Advalue Advisors. Therefore, such payment will form part of the transaction value of the goods supplied.
Optobizz Pvt. Ltd., a supplier of goods has engaged Mr. Piyush as selling agent. The commission to Mr. Piyush has been paid by the recipient of the supply. In this case, the underlying obligation of payment of selling commission is of Optobizz Pvt. Ltd.as it has engaged the agent to identify prospective customers. If the obligation to pay the agent is passed on to the recipient, then the price paid to Optobizz Pvt. Ltd. does not reflect the true value of supply. Had the recipient refused to pay his selling commission to the agent, then Optobizz Pvt. Ltd. would have paid Mr. Piyush and made a corresponding increase in the price of the supply. Thus, the selling commission paid by the recipient to Mr. Piyush is to be included in the Value of taxable supply.
Further, it is to be clarified that the amount received as reimbursement by the pure agent would be excluded from the value of supply as well as from aggregate turnover. As the amount of reimbursement of expenses would not be included in the value of supply, the supplier himself cannot charge GST on the same and would only charge the actual amount paid to the person to whom the Payment has been made.
This author can also be reached at www.advalueadvisors.com or firstname.lastname@example.org