The Maharashtra Authority of Advance Ruling (AAR) has in its recent ruling has held that the Input Tax Credit (ITC) is available to Applicant on GST charged by the service provider on the hiring of bus/motor vehicle having a seating capacity of more than thirteen people for the transportation of employees to & from the workplace but only after February 1, 2019.
It was further held by AAR that GST will not be applicable on nominal recoveries made by employer from employee towards transport facilities.
Facts of the Case:
- The Applicant, M/s Tata Motors Limited is in the business of manufacturing commercial and passenger vehicles.
- The Applicant has engaged a service provider to provide transportation facilities to its employees in non-air conditioned bus for commuting to and from the workplace.
- In lieu of transportation facilities provided to employees, applicants are recovering some nominal amount from them.
Issues on which ruling was sought:
- Whether input tax credit (ITC) is available to Applicant on GST charged by service provider on hiring of bus/motor vehicle having seating capacity of more than thirteen person for transportation of employees to and from workplace.
- If ITC is available, whether it will be restricted to the extent of cost borne by the Applicant (employer).
- Whether GST is applicable on nominal amount recovered by Applicants from employees for usage of employee bus transportation facility in non-air conditioned bus.
Maharashtra AAR: Deliberations and Ruling
- Section 17(5) of the CGST Act, 2017 has clearly debarred Input Tax Credit on motor vehicles or conveyances used in transport of passengers till the date of amendment i.e. 01.12.2019. However w.e.f. 01.12.2019, Input Tax Credit has been allowed on leasing, renting or hiring of motor vehicles , for transportation of persons, having approved seating capacity of more than thirteen persons (including the driver).
- The applicant , citing the decision of Hon’ble High Court of Bombay in the case of CCE , Nagpur vs Ultratech Cements Ltd has submitted that ITC is not admissible to Applicant on part of cost borne by employee and thus ITC will be restricted to the extent of cost borne by the Applicant. This view of Applicant has also been endorsed by the jurisdictional officer.
- The applicant is not supplying any services to its employees, in view of Schedule III (Employer-Employee relation) , we are of the opinion that GST is not applicable on the nominal amounts recovered by the Applicants from their employees.
In view of above deliberations, the two-member bench of A.A. Chaure and P.Vinitha Sekhar ruled that ruled that ITC is available to Applicants on GST charged by service providers on hiring of bus/motor vehicles having seating capacity of more than thirteen persons for transportation of employees to & from the workplace but only after February 1, 2019. Further such ITC will be restricted to the extent of cost borne by the Applicant (employer).
The authority further ruled that GST not is applicable on nominal amount recovered by Applicants from employees for usage of employee bus transportation facility in non-air conditioned bus.
Our Comments:
The ruling that ITC is admissible (post 01.02.2019) on GST paid on vehicles having seating capacity more than 13 persons, used for transportation of employees is on expected lines.
However the major highlight of the ruling is that AAR has adjudged that GST will not be applicable on nominal recoveries from employees towards transportation facilities as same is not supply as per Schedule III. Para 1 of said Schedule mandates that ‘Services by the employee to the employer in the course of or in relation to his employment” shall be treated neither as a supply of goods nor a supply of services.
If we strictly interpret Para, it appears that only the services by employee to employer are covered here and not the services by employer to employee. As in this case the services are provided by employer to employees and consideration is received by employer, applicability of Schedule III seems doubtful.
Further in case the transportation facilities are regarded as supply , employees being related person as per Explanation to Section 15 of the CGST Act, 2017, the transaction value will be disregarded and value of supply will be determined as per Rule 28/ 30 / 31 of the CGST Rules, 2017. Although it can be argued that providing of transportation facility is part of employment terms / CTC and thus question of levy of GST on any recoveries or nil recoveries does not arise.
Anyways lets cherish the Ruling…
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
