Whether ITC would be available in respect of GST paid for hotel stay in case of rent free accommodation provided to MD and GM?.......

PJ/Case Law/2018-2019/3523

Case:M/s Posco India Pune Processing Centre Private Limited
Citation:AAR no. GST-ARA-3/2018-19/B-110 dated 07.09.2018
Issue:

Whether ITC would be available in respect of GST paid for hotel stay in case of rent free accommodation provided to MD and GM?
Whether invoice for quality claim raised by the Company on POSCO Daewoo Corporation located in Korea will be treated as ‘export of service’?
Whether recovery of 50% of the Parents Health Insurance expenses from employee in respect of insurance provided by the Company amounts to ‘supply of service'?

Brief facts:
M/s. POSCO-India Pune Processing Center Private Limited (‘the Company’) is South Korea based company located at Talegaon, MIDC, Pune. The Company is primarily engaged in distribution of steel coils. The POSCO Group Company from overseas has deputed a Managing Director (‘MD’) and General Manager (‘GM’) in India for looking after the business in India. In the present case, both the above key personnel have relocated to India without family. Therefore, as per the terms of deputation, instead of making payment in cash, the MD and the GM are provided with perquisite in the nature of rent-free accommodation. The MD and the GM are provided accommodation in a hotel and the cost of the same is borne by the Applicant. It is included as perquisites in the salary as per the provisions of Income Tax Act, 1961.
The Company had imported goods from POSCO Daewoo Corporation, Korea and availed ITC of IGST on the same. Subsequently, the Company sold the goods to its customer under the cover of tax invoice on payment of applicable GST. Subsequent to the sale, it was observed that the goods were defective and therefore the Company raised a credit note to its customer and the customer raised a debit note. As per the terms of the contract between POSCO Daewoo and the Company, the Company was required to charge back the loss incurred because of quality issue. Accordingly, the Company raised a tax invoice against which it received payment in foreign currency.
It was submitted by the Company that it is in their practice to provide mediclaim cover to the employees as well as their parents. Initially, the Company pays the entire premium along with taxes and then recovers 50% of the premium from the employees on a monthly basis.

Reasoning of Judgment:The AAR has observed that the rent free accommodation provided to the MD and GM was for their personal comforts. Therefore no ITC can be allowed in respect of hotel stay / loading – boarding / accommodation service provided to MD and GM of the Company in accordance with the provisions of section 17(5)(g) of the CGST Act, 2017 which restricts credit of expenses used for personal consumption.
The AAR has observed that the Company has not provided entire details in respect of the transaction. It was submitted by the Company that post the importation of goods, Input Tax credit of IGST was availed and then the goods were sold to its customer, which were found to be defective. Accordingly, credit notes and debit notes were exchanged between the Company and its customer. It has not been stated by the Company as to what is the status of the defective goods or the credit availed on IGST. As long as the goods are with the customer, it is them who are tolerating the act and not the Company. In light of such unanswered questions, it was noted by the Authority that complete details regarding the transaction have not been submitted and therefore they have refrained from answering to this question.
In regards to recovery of 50% of insurance premium from its employees, the AAR had observed that the Company is creating fiction of providing health insurance to their employees only to avail 100% ITC of payment made to the insurance company. The AAR has ruled that the recovery of such insurance premium from the employees cannot be treated as supply and consequently, the Company would not be eligible for ITC paid on such expenses to the insurance company.

Comment: There were the two contradicting rulings given by two different State AARs on the same issue of – “employer providing services to employees and whether the amount recovered for the same shall be treated as a supply” within the time span of March and September 2018.
In both the cases i.e. Caltech Polymers Pvt Ltd (ORDER No.CT/531118-C3 DATED 26/03/2018) and the discussed case, we hope that Revenue generation may be considered and ruling is given based on the same. It is said so because in the first case, recovery of food expenses from the employees for the canteen services provided by company would come under the definition of ‘outward supply‘ as defined in Section 2(83) and therefore taxable as supply of service. And in the second case recovery of Parents health insurance expenses from employees does not amount to “supply of service” under the GST laws and the applicant cannot avail ITC on GST charged by insurance company.
Moreover, it is been clearly evident from the facts that MD and GM have been provided with the rent free accomdation since they relocated in India, and they should be treated as part of perquisites and therefore, ITC should be admissible.
Prepared by: Adit Gupta

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PJ/Case Law/2018-2019/3523

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