Whether recovery of parental insurance premium from employees considered as supply?

PJ/Case Law/2020-2021/3584

M/S ION TRADING INDIA PRIVATE LIMITED2020 (32) G.S.T.L. 608 (A.A.R. - GST - U.P.) dated 25.09.2019
Brief Facts:-The applicant is engaged in the business of software development which is exported to the overseas company. The applicant has the policy of providing group mediclaim coverage to all of its employees, their spouse and three children, cost of which is borne by the applicant. In addition to this, any employee can opt for mediclaim coverage for their parents also for which the employee has to pay an amount of Rs. 5,000/- for both the parents. The amount of premium recovered from the employee by the applicant is restricted to Rs. 5,000/- for both the parents and anything in excess of Rs. 5,000/- is bear by the applicant. Accordingly, the applicant pays the recovered amount to the insurance company against the increased insurance premium of next year’s insurance policy.
As per applicant, there would be no GST implication on the medical insurance premium paid by them for their employee, spouse and their children in terms of employee-employer relationship.
Issue-As regard to the mediclaim insurance of parents of the employee, the following questions have been posted by the applicant in its application :-
(i)    Whether amount recovered from the employees towards parental insurance premium payable to the insurance company would be deemed as “Supply of Service” by the applicant to its employees?
(ii)   If the first question is answered in affirmative, whether the value of aforesaid supply would be NIL, being provided in the capacity of a “Pure Agent”? If valuation is not accepted as NIL, what would be the value of such supply?
(iii) If GST is payable on the such amount recovered from the employees, whether the proportionate GST paid by the applicant to insurance company towards parental insurance would be admissible as input tax credit against supply of insurance services for employees’ parents?

Applicant’s contentions: -It was submitted that as per their view they are in the business of development and export of software which is its business activity in terms of the definition of business in the Section 2(17) of the CGST Act. Facilitating insurance services for employees’ parents is definitely not an activity which is incidental or ancillary to the activity of developing software, nor can it be called an activity done in the course of or in furtherance of development of software as it is not integrally connected to the business in such a way that without this the business will not function and which will take the business activity forward. If mediclaim facility for employees’ parents is not provided, there will definitely be some inconvenience to the employees but it would not facilitate the business activity of developing software. Accordingly the applicant has concluded that facilitating the medical insurance for employees’ parents, is not an activity by them in the course of or in furtherance of its business of software development.
The applicant also paid reliance on the Advance Ruling pronounced by the Maharashtra Authority for Advance 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) to vindicate their stand.

Reasoning of judgment: -After considering the submissions of the applicant, reference was made to the meaning of supply given under section 7(1) of the CGST Act, 2017, service under section 2(102) of the CGST Act, 2017 and business under section 2(17) of the CGST Act, 2017 in order to arrive at conclusion whether activity of providing mediclaim facility to parents of the employees is an activity “in course or furtherance of the business” of the applicant. It was held that the applicant is engaged in the business of development and export of software to the overseas company and not in the business of providing insurance services. The reliance placed on the decision given in the case of M/s. Posco India Pune Processing Center Private Limited[2019 (21) G.S.T.L. 351 (A.A.R. - GST) was accepted wherein it was held that amount recovered for making payment to insurance company for providing mediclaim facilities cannot be supply of service by employer under GST law.
Therefore, it was held that the recovery of premium amount from employee and subsequent deposit it with insurance company cannot be treated as supply of service in the course of furtherance of business. Providing insurance facility to employees’ parents is no where connected with the business of the applicant.
As answer to the first question was in negative, there is no need to answer the other questions raised by the applicant.
COMMENT:-The entry no. 2 of Schedule I to the CGST Act, 2017 seeks to levy GST on supply of goods or services between related persons when made in the course or furtherance of business even if made without consideration. Furthermore, as per meaning of related person given in Explanation to section 15 of the CGST Act, 2017, employer and employees are considered as related persons. Hence, it is being interpreted that facilities provided by employer to the employees are liable to GST even if no consideration is involved in the said transactions. Accordingly, it is being opined that employer is liable to pay GST on canteen facilities provided to its employees except when the said facilities form part of the salary component of the employee. Reference may be made to decision given in the case of CALTECH POLYMERS PVT. LTD. [2018 (18) G.S.T.L. 373 (AAAR-GST)]. It is on account of this confusion that question regarding liability to pay GST on mediclaim premium recovered from employees was raised in the present application. However, the AAR has correctly held that such activity is not supply of service by employer to employee and is not liable to GST. Now, the question arises is whether the ratio of the present ruling cannot be applied in case of canteen facilities provided by employer to employee as the said facility is also not in the usual course of business of the employer. The government should come up with suitable clarification at the earliest possible so that confusion created by contrary decisions is settled.
Prepared By- CA Neetu Sukhwani

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PJ/Case Law/2020-2021/3584

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