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Corporate News *  Missing seized records must be considered while testing ITC claim; duplicate GST demands ordered corrected: Delhi High Court. *  GST appeal can’t be rejected without addressing taxpayer’s grounds: Allahabad High Court. *  Surplus IGST credit can offset CGST, SGST shortfall: GSTAT. *  GST refund can’t be denied when cancelled airfares are returned with tax: GSTAT. *  3 Hearing notices issued within 2 minutes: Gujarat High Court flags portal flaw, seeks report. *  GSTR-9, GSTR-9C filing for FY 2025-26 enabled; pending GSTR-1 and GSTR-3B must be filed first. *  Dupattas are exempt fabrics, can’t be taxed as fibres at 4%: Madras High Court. *  Full transitional credit allowed on capital goods received after GST rollout: GSTAT denies Rs. 6.99 lakh export duty credit. *  GST return mismatch alone can’t justify fraud proceedings: GSTAT orders fresh adjudication under section 73. *  Supplier found non-existent later can’t alone justify input tax credit denial: GSTAT. *  GST interest stops once tax reaches government account, can’t run until return filing: GSTAT. *  Cancelled flat booking- GST refund can’t be denied without excluding COVID period from limitation: GSTAT. *  India notifies rules of origin for India–New Zealand FTA. *  Incomplete E-bike kits classifiable as complete vehicles, but not eligible for CKD duty concession: CESTAT. *  Same GST rate on main input and output can’t by itself bar inverted duty refund: GSTAT. *  Unjust enrichment doesn’t apply to customs refunds from assessments finalised before July 13, 2006: Gujarat High Court. *  CENVAT credit can’t be denied solely because plant And machinery are embedded in earth: Karnataka High Court. *  DFIA exports ineligible for RoDTEP benefits; customs directs repayment with applicable interest. *  Second E-Way bill alone doesn’t prove another supply: GSTAT. *  Bail denied in Rs. 1.19 crore fake GST refund case over risk of accused absconding again: Punjab and Haryana High Court. *  GST registration can be restored after revocation deadline if outstanding dues are paid: Gauhati High Court. *  Multiple GST proceedings over same suppliers: Calcutta High Court directs dept. to share findings for adjudication. *  E-Governance portal services not OIDAR, fixed deposit interest not taxable: CESTAT. *  Rs. 500 Stamp duty required on authority letters for CAs, CMA and GST practitioners in Pune GST division.  *  Rs. 1.10 crore GST refund must be paid in cash after business closure: Allahabad High Court. *  Godown rent attracts 18% GST even when used exclusively for exempt agricultural warehousing: AAR. *  GST portal launches "Multi-State Registration" facility: one master TRN for registration applications across multiple States/UTs. *  RoDTEP scheme extended till 31st December, 2026.  *  Mere disagreement with order can’t override Rs. 20 lakh appeal limit: GSTAT. *  Customs interest can’t be backdated before confiscation liability is determined; nearly 8 year period excluded: Delhi High Court.
Subject News *  GST summons: anticipatory bail maintainable without arrest order, but relief denied in evasion case: Allahabad High Court. *  GST Appeal can’t be decided without hearing taxpayer’s objections to fresh evidence: Allahabad High Court. *  GST ITC can’t be reversed merely because supplier grants discount without reducing tax liability: GSTAT. *  Mere quoting of GST provision is not a valid charge: GSTAT quashes ITC denial. *  Personal hearing mandatory before adverse GST order, even without taxpayer’s request: Rajasthan High Court. *  Parallel bail pleas without full disclosure amount to abuse of process Rs. 43.08 crore GST case sent for fresh hearing: Supreme Court. *  GST refund based on unchallenged advance ruling can’t be recovered using later circular: GSTAT. *  Payment of GST alone doesn’t end interest and penalty liability when tax and interest remain unpaid beyond 30 days of notice: GSTAT. *  GST demand over builders’ 80% procurement rule requires reasoned adjudication: GSTAT. *  Eligible ITC doesn’t automatically entitle taxpayers to compensation cess refund on domestic sales: GSTAT. *  GST confiscation order passed before reply deadline invalid: GSTAT. *  GST interest can’t be retained after tax refund on delayed export receipts: Punjab & Haryana High Court. *  GST appeal can’t be dismissed over pre-deposit shortfall without opportunity To respond: Bombay High Court. *  DGGI SCN can’t be challenged before reply and adjudication:Chhattisgarh High Court. *  GST input tax credit can’t be denied solely due to supplier’s retrospective registration cancellation: GSTAT. *  GST notice must explain fraud allegations; merely repeating section 74 Is not enough:  Himachal Pradesh High Court. *  Audit detection alone can’t justify GST fraud penalty; specific suppression must be proved: GSTAT. *  GST order uploaded only under ‘Additional Notices’ tab without separate intimation set aside: Calcutta High Court. *  Service Tax appeal can’t be rejected for missing pre-deposit proof when payment is already recorded: CESTAT. *  SGST dept. can’t hear appeal against CGST order: Calcutta High Court. *  Mere dispatch of tax order can’t prove service or make appeal time-barred: CESTAT. *  Dealer incentives can’t be taxed merely on ledger entries: CESTAT. *  DGFT orders quashed for failure to supply DRI letter relied upon in SCN: Bombay High Court. *  GST penalty u/s 122(1A) can’t apply to Pre-2021 transactions; unregistered beneficiaries also covered: Delhi High Court. *  Expired E-way bill caused by wrong PIN code can’t justify GST penalty without intent to evade tax: GSTAT. *  Used railway rails can’t be taxed as track material without proof they are fit for reuse: CESTAT. *  Earlier DGGI notice doesn’t bar separate GST demand on different issue: Delhi High Court. *  ITC dispute involves no question of law: GSTAT directs appeal to Vice-President. *  Earlier DGGI notice doesn’t bar separate GST demand On different issue: Delhi High Court. *  No E-way bill required for interstate goods movement in november 2017: GSTAT quashes detention and penalty.  

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GST Update on Employee Reimbursement under GST 24/2020-21

GST Update on Employee Reimbursement under GST 24/2020-21

This update intends to bring out clarification with respect to taxability of transaction between employee and employer.

With implication of GST Act, lot of confusion has prevailed regarding the taxability of transaction between employee and employer and applicability of Reverse Charge Mechanism on such transaction.In this update, we look at the applicability of GST on employee reimbursement in detail.

GST is applicable on “Supplies” of goods and services. The scope of the term “supplies” has been elaborately defined in Section 7 of the Central Goods and Services Tax Act, 2017 which primarily includes transactions made for a consideration. However, in cases referred to in Schedule I to the CGST Act, transactions are treated as supplies even if the consideration is absent which includes supplies between related persons when such supplies are made in the course or furtherance of business.

In this context, it would be relevant to note that the explanation to Section 15 of the CGST Act provides that employer and employee will be deemed to be “related persons”. Accordingly, supplies by employer to employees would be liable to GST even though these supplies are made without consideration since they are considered as related persons (except gifts upto Rs 50,000 which has been detailed at a later point in time in this document).

However, Schedule III to the CGST Act provides that “services by employee to the employer in the course of or in relation to his employment” will not be considered as supply of goods or services and hence GST is not applicable on services rendered by employee to employer provided they are in the course of or in relation to employment.
Hence, transactions which are excluded from the levy of tax for transactions between employee and employer are
1. Supply of services by employee to employer in the course of employment
2. Gifts by Employer to employee not exceeding Rs 50,000 in a Financial Year. Based on the above stated statutory provisions, in the ensuring paragraphs, we have tried to analyse the tax impact on various transactions between the employer and employee

a)        Employee Reimbursement – Purchase from Registered Dealer
-           Reimbursement of expenses relating to goods / services procured from registered supplier and the GST Number of the employer is quoted on the invoice – Vendor to charge tax (if taxable supplies) and employer entitled to claim credit subject to input tax credit restrictions.
-           Reimbursement of expenses relating to goods / services procured from registered supplier and the GST Number of the employer is not quoted on the invoice – Vendor to charge tax (if taxable supplies). Employer not liable to GST under reverse charge since the procurements have been made from registered dealer except that the GST Number of the employer has not been quoted on the invoice

b)        Gift to Employee under GST
As per provisions of Schedule II, read with Section 7 of the CGST Act, “gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both”.
The definition of gift has not been provided in the GST Acts hence we have to consider the definition as provided under other Acts. As per section 122 of the Transfer of Property Act, 1882 the definition of gift is as under:
“Gift is the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person to another and accepted by or on behalf of the donee.”
Hence it can be concluded that anything given voluntarily without any consideration can be considered as a gift. Therefore, Diwali gifts given to employee will not be subject to GST if value is less than INR 50,000 in any financial year.
 
C)        Notice Pay Recovery
 
Employees who resign from their job are expected to serve notice period as mentioned in the employment contract. If the employee does not serve such notice period, the salary of the unserved portion of notice period is retained by the employer.
 
Notice pay recovery (Savings in expense which can be viewed as income to the employer) This issue was subject matter of litigation in service tax laws also and there were contrary decisions as regards levy of service tax on notice pay. The revenue authorities contend that the consideration to the employer for “tolerating the act” of the employee to not serve the notice period which was the employee’s contractual obligation and so the transaction is liable to GST. However, recently, the Hon’ble Madras High Court has held in the case of GET & D India Ltd. that service tax is not leviable on notice pay recovery from employees as it cannot be considered to have been covered by declared service of tolerating an act. It can be said that the ratio of this decision can be applied in GST regime as well and GST should not be levied on notice pay recovery.
 
d)        Disposal or Sale at concessional rate
Companies might allow employees to retain asset like laptop, Bike & Car etc. when he quits the organization or allow the employee to use a company asset for personal purposes. In such cases, the employer will have to pay taxes on the value of such assets if credit is availed on such assets since this transaction will get covered under Sl. No 1 of Schedule I to the CGST Act, 2017.
Based on the above, we can observe many transactions occurs between employee and employer and the leviability of GST needs to be examined individually on case to case basis.

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