GST UPDATE ON ITC AVAILABILITY ON TRANSPORTATION SERVICES AVAILED FOR EMPLOYEES 139/2020-21

The restrictions as regards availment of input tax credit on hiring of motor vehicles has created confusion in the minds of employers regarding admissibility of input tax credit on transportation services availed for the commutation of their employees from third parties. This issue was recently raised before the Hon’ble Maharashtra AAR in the case of M/S TATA MOTORS LTD. which is the subject matter of discussion in our present update.

In this case, applicant had engaged third party service provider to provide transportation facility to its employees in non-air-conditioned buses having seating capacity of more than 13 persons. To ensure that transportation facility is used only by authorized persons/employees, applicant is issuing pass to employees and nominal amount is recovered on monthly basis. The applicant has sought an advance ruling to determine availability of ITC on GST charged by service provider on hiring of bus/motor vehicle for transportation of employees and applicability of GST on such nominal amount recovered from employees. It also sought that if ITC is available, whether it will be restricted to the extent of cost borne by the applicant.

The AAR observed that with effect from 1-2-2019, section 17(5) of CGST Act, 2017 has been amended to allow ITC on leasing, renting or hiring of motor vehicles, for transportation of persons having approved seating capacity of more than thirteen persons (including the driver). Since in the given case, the applicant is using non-air conditioned buses having seating capacity of more than 13 persons, it shall be eligible for ITC but only after 1-2-2019.

On question of chargeability of GST on nominal amount charged from employees, AAR observed that once employee ceases to be in employment with applicant, he/she is not authorized to use the transportation facility. In other words, employer-employee relationship is must to avail this facility and the facility can be treated as perquisite given by the applicant to its employees. As per clause 1 of the Schedule III of the CGST Act, services by an employee to the employer in the course of or in relation to his employment shall he treated neither as a supply of goods nor a supply of services. Since the applicant is not supplying any services to its employees, in view of Schedule III, GST is not applicable on the nominal amounts recovered by applicants from its employees.

Further, on question of restriction of ITC to the extent of cost borne by the applicant employer, AAR referred the decision given by the Hon'ble High court of Bombay in the case of CCE, NAGPUR V. ULTRATECH CEMENTS LTD. and held that ITC is not admissible to applicant on the portion of cost borne by employee and thus, ITC will be restricted to the extent of cost borne by the applicant.

The ruling is no doubt favourable to the assessee but we wish to add our point regarding non-taxability of GST on nominal charges recovered by employer from the employees for transportation facility provided to them. Reference may be made to AAR ruling in the case of M/S. POSCO INDIA PUNE PROCESSING CENTER PRIVATE LIMITED[2019 (21) G.S.T.L. 351 (A.A.R. - GST) andM/s ION TRADING INDIA PRIVATE LIMITED wherein it was held that premium amount recovered for making payment to insurance company for providing mediclaim facilities by employer to its employees cannot be treated supply of service by employer under GST law because employer is not engaged in providing insurance services and the said activity is not in course or furtherance of its business so as to levy GST. It appears that this reasoning is convincing and was missed while ruling that the amount recovered from employees for transportation facility is not liable to GST. It is hoped that similar advance ruling is pronounced for other facilities provided by employers such as canteen facilities which is also in terms of employment contract.

This is solely for educational purpose.
You can reach us at www.capradeepjain.com , at our facebook page on https://www.facebook.com/GSTTODAYBYPRADEEPJAIN/ as well as follow us on twitter at https://www.twitter.com/@capradeepjain21 and u may also follow us on Linkedin https://www.linkedin.com/in/ca-pradeep-jain-b6a31a16

Comments

GST UPDATE ON ITC AVAILABILITY ON TRANSPORTATION SERVICES AVAILED FOR EMPLOYEES 139/2020-21

Post a Comment

Query