Reimbursement paid by assessee to employees covered under Schedule III, not liable to tax and tax is not payable on RCM: AAR

Vandvi Scientific Solutions (P) Ltd., In re [2023] (AAR- Karnataka)

The applicant was an integrated Custom Research and Manufacturing Services (CRAMS) provider offering single point access to discovery services, CPRAD (Chemical Process Research and Development), drug production development & regulatory support services to global pharmaceuticals and biotech companies. However, some of expenses would be incurred by their employees on behalf of company and said amounts shall be reimbursed by company on periodical basis. It filed an application for advance ruling to determine whether reimbursement of expenses at actual cost which shall be incurred by employee staffs on behalf of company would be liable to tax.

The Authority for Advance Ruling noted that the amount paid by employee to supplier of service would represent amount paid by "any other person" and shall be covered under term "consideration" paid by applicant to service provider for services received by employees on behalf of company. This amount reimbursed by applicant-assessee to employee would not amount to consideration for supplies received as services of employee to his employer in course of his employment. Hence, it would not be treated as a supply of goods nor supply of services in terms of clause 1 of Schedule III of CGST Act, 2017. Therefore, it was held that reimbursement of expenses would not be liable for imposition of tax.

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Thanks

CA Rahul Gupta 

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