No ITC available on hiring of Taxis for Transportation of Employees – AAR

Himachal Pradesh Authority for Advance Ruling(AAR) in its recent ruling in case of Prasar Bharti Broadcasting Corporation of India has adjudged that that no Input Tax Credit (ITC) will be available in respect of renting of taxis used for transportation for employees, which is not obligatory under any law, for the time being in force.

Facts of the Case

The applicant Prasar Bharti Broadcasting Corporation Of India (All India Radio), Shimla is a public service broadcaster who entered into an agreement for hiring taxis for different purposes as mentioned below:

• To pick up / drop shift duty staff in odd hours. The facility being provided in odd hours to lady-employees, handicapped & general employees.

• For tour / OB recordings etc within the State of Himachal Pradesh on different occasions.

• To drop shift staff at High Power Transmitter during morning / evening & for office work during day time.

Question on which Ruling was sought

Whether input tax credit is available to the applicant on the services of hiring of taxis through contractors and what rate of GST will be applicable on the same.

Highlight and Ruling of Order of Himachal Pradesh AAR

• As per Section 17(5)(b)(i) of the CGST Act, 2017, inter-alia, input tax credit shall not be available in respect of renting or hiring of motor vehicles. However as per second proviso to Section 17(5)(b) of CGST Act such input tax credit would be available where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.

• The availability of ITC as per provision of second proviso to Section 17(5)(b) of CGST Act is available only on the condition that such goods or service or both is obligatory for an employer to provide to its employees under any law for the time being in force. Since the applicant has not been able to cite any law under which the service of providing the facility of transportation to his employees is obligatory under any law, therefore ITC will not be available to him.

• Rate of tax on renting of motor vehicle as per Notification No. 20/2017 Central Tax (Rate) dated 22.08.2017 & Circular No. 130/49/2019-GST dated 31.12.2019 is 5% with limited ITC of input services in the same line of business or 12% with full ITC.

In view of above Himachal Pradesh AAR adjudged that the applicable rate of tax on renting of cabs as per Notification No. 20/2017 – Central Tax (Rate) dated 22.08.2017 is 5% with limited ITC of input services in the same line of business and 12% with full ITC.

Further the AAR ruled that if the facility provided by tax payer for transportation of employees is not obligatory under any law, for the time being in force then No ITC will be available to tax payer. The applicant will however be eligible to claim ITC for service supplied at 12% GST rate if the conditions laid down in second proviso to Section 17(5)(b) are fulfilled.

Our view

The order of Himachal Pradesh AAR is on expected lines and rather reiterates the provisions of Section 17(5)(b) of the CGST Act,2017. This ruling will also be applicable wherein tax is being paid under reverse charge mechanism on renting of motor vehicles @5%.

Needless to mention here that even if a Company purchases motor vehicle and uses the same for transportation of its employees, then also Input Tax Credit thereon cannot be availed, as same is blocked under Section 17(5)(a) of the CGST Act,2017.

For ready reference of our readers complete order is given below:-

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