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SGST AAAR

GST – Tamil Nadu AAAR - Taxable supply, Valuation, Reverse Charge, Time of supply - Taxability of payments made by the appellant to the overseas holding company against reimbursement of expenses made towards credit card expenses under Reverse Charge - reimbursement of Credit Card expenses to subsidiary company in India by overseas holding company – HELD - the expenses incurred through credit card issued by the overseas holding company to the employees of the appellant, are first recovered from the appellant through invoice raised from overseas holding company and subsequently included in the invoice raised by the appellant on the holding company for the development of software - the reimbursements paid by the appellant to the holding company for the expenses incurred initially by its employees are nothing but part of software development cost and consequently part of the taxable value of services of appellant - the expenses borne by the recipient overseas holding company of the appellant and later reimbursed but again included in the taxable invoice are in the nature of advance consideration paid by the recipient to the supplier appellant and the time of supply provisions relating to advances received by a supplier of services as per Section 13 of the CGST Act will be applicable - the applicable rate of GST on such expenses incurred by the recipient and reimbursed by the appellant is the same rate at which the appellant charges for the software development service supplied by the appellant to the overseas holding company - the Ruling pronounced by the Advance Ruling Authority is modified to the extent that GST is leviable on the reimbursement amount, being advance payment made by the holding company, as per the Time of Supply provided under Section 13 of the CGST Act and applicable rate is that applicable to the supply of Software Services made by the appellant - The fact of reimbursement does not result in any transaction in its own, as was held by the AAR, but such expenses of employees of appellant through the credit card of the overseas holding company (recipient of the supply of appellant), borne at the first instance by the recipient of the supply is nothing but which the supplier (appellant) was liable to incur and reimbursed are for the only purpose of restoring the appellant company’s accounts to previous position for operational convenience so that the same could be later included in the software development charges invoiced by the appellant to the recipient (overseas holding company). There is indeed an economic rationale for such treatment of expenses as transfer of resources happened between the appellant supplier to its overseas holding company recipient. Such reimbursements as per Section 15 of the GST Act read with sequential application of Rules 28 to 31 of the CGST Rules are to be included in the value of supply and tax is to be paid as per the time of supply provisions applicable to such transactions; as per the admission of the appellant, the same is however being included albeit later in the tax invoice raised by the appellant - GST is required to be paid on such amounts of expenses reimbursed at the time determined as per Section 13 of the GST Act, as it represents the part of consideration received in advance by the appellant from its recipient, notwithstanding that the same is later included in tax invoice of the appellant, and to he paid at the time of reimbursement as by then the actual expenses borne by the recipient is known. Therefore, the first question sought by the appellant is answered in affirmative - the applicable rate of GST on such expenses incurred by the recipient and reimbursed by the appellant is the same rate at which the appellant charges for the software development service supplied by the appellant to the overseas holding company, on the ground that the expenses are part of the taxable value of such services and attract the same rate indicated in the tax invoice for the software development charges issued by the appellant on the overseas holding company
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