GST UPDATE No. 104 ON ITC ADMISSIBILITY ON HIRING OF BUS FOR EMPLOYEES

The admissibility of input tax credit (ITC) with respect to hiring of motor vehicles has been a matter of dispute since inception as the government has imposed restrictions as regards availability of credit on motor vehicles. Although GST law was formulated with the idea of seamless flow of input tax credit but section 17(5) has imposed certain prohibitions as regards availment of input tax credit, one of them being in relation to motor vehicles. The issue regarding admissibility of ITC of GST charged by service provider on hiring of bus for transportation of employees to and from workplace and the liability to pay GST on the recovery made from employees was raised before the UP AAR in the case of DR WILLMAR SCHWABE (I) PRIVATE LIMITED. The reasoning adopted by AAR is the subject matter of discussion of our present update. The applicant stated that providing transportation facilities to employees has direct nexus with the business activities and so are to be considered as in course or furtherance of business. Moreover, it was pleaded that after amendment in section 17(5) of the CGST Act, 2017 w.e.f. 01.02.2019, ITC is allowed on leasing, renting or hiring of motor vehicles having approved capacity of not more than 13 persons. Reliance was placed on the decision given in the case of COMMISSIONER OF CENTRAL EXCISE, VERSUS M/S FEDERAL MOGUL GOETZE (INDIA) LTD. [2011 (9) TMI 120- PUNJAB AND HARYANA HIGH COURT] and COMMISSIONER OF CENTRAL EXCISE, BANGALORE-III, COMMISSIONERATE VS STANZEN TOYOTETSU INDIA (P.) LTD. [2011 (4) TMI 201-KARNATAKA HIGH COURT]. Furthermore, it was contended that amount recovered from employees was not towards any independent supply rather it was recovery of transportation cost incurred as per the employment contract so not liable to GST. In this context, reliance was placed on the decision given in the case of M/S TATA MOTORS LIMITED [2020 (9) T.M.I. 352- AUTHORITY FOR ADVANCE RULING, MAHARASHTRA]. The AAR held that prior to amendment in section 17(5) of the CGST Act, 2017, ITC with respect to rent-a-cab services was not available which had wide connotation and included all types of motor vehicles which were hired for transportation of employees. However, with the introduction of amended section 17(5) of the CGST Act, 2017, w.e.f. 01.02.2019, ITC on leasing, renting and hiring of motor vehicles have been disallowed only for vehicles having capacity upto 13 seats. Hence, it was concluded that ITC is available on the GST paid for hiring of buses for transportation of employees. As regards taxability of recovery of amount from employees is concerned, AAR referred to the provision contained in clause I of the Schedule III to the CGST Act which lists the activities which shall be treated neither as a supply of goods nor supply of services. As per clause I of the Schedule III to the CGST Act, services provided by an employee to the employer in the course of or in relation to his employment shall be treated as neither supply of goods nor supply of services. However, it is worth pointing out that the reasoning adopted appears to be incorrect as in the Schedule III covers services by an employee to employer in the course of employment and not vice versa. In the present case, services are being provided by employer and not employee so the reference made to the Schedule III is misplaced. However, even otherwise, GST is not payable as employer does not provide transportation services in the normal course of business and it is just a facility extended to the employees under terms of employment. It has been held by Maharashtra AAR in the case of M/S JOTUN INDIA PRIVATE LTD. that applicant is not in business of providing insurance services so recovery of premium paid for insurance of parents of employees does not amount to provision of insurance services by employer and is not liable to GST. Following the same analogy, as the applicant is not in business of transport services, GST is not payable on such facility provided to employees. However, AAR ruled that the ITC would be restricted to the extent of cost borne by the applicant and proportionate ITC pertaining to recovery made from employees would not be admissible. This decision is appreciable as there are few instances wherein the advance rulings are being rendered in favour of the applicant inspite of clear provisions prevalent in the statue. The above decision seeks to put an end to the unwarranted litigation as regards ITC admissibility on GST paid for hiring of buses with seating capacity of more than 13 in light of amendment made in section 17(5) of the CGST Act, which is made applicable w.e.f. 01.02.2019.

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GST UPDATE No. 104 ON ITC ADMISSIBILITY ON HIRING OF BUS FOR EMPLOYEES

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