Perquisites provided by an employer to an employee under the contractual agreement would not be subjected to goods and services tax (GST), the central board of indirect taxes and customs has clarified, vide Circular No. 172/04/2022-GST dated 6th July 2022 which would put an end to ongoing litigations on the issue. This will be applicable from July 2017. This is part of the slew of clarifications that the Board has issued regarding decisions by the GST Council taken during the two-day meeting in Chandigarh last week.
The Board has also clarified that GST payable as a result of departmental audits and assessments can be made using GST credits, instead of making cash payments, a move that will help several businesses having accumulated tax credits.
There are a slew of litigations surrounding GST applicability over perquisites offered to employees and the divergent advance rulings on the subject led to confusion. A perquisite is a non-cash benefit granted by an employer to the employee such as transportation, canteen, healthcare, insurance, for their employees.
“Transactions between related parties are subject to GST levy even if made without a consideration. Further, employers and employees are deemed related under GST, while any consideration payable to an employee by the employer in the course of employment was kept outside GST purview. All of this led to confusion regarding applicability of GST on benefits /perquisites provided by employers to employees,” said Abhishek Jain, tax partner, KPMG. “It is good to see the Government clarify that perquisites given as a part of the contractual agreement between employer and employee will not be liable to GST, which was also the industry view,” added Jain.
While Maharashtra Authority of Advance Ruling (AAR) had in the case of Tata Motor held that bus facility provided by the employer to the employee at a nominal price was not liable to GST However, in a similar case of Beumer India, the Haryana AAR took a contrary stance and ruled that the transport facility provided to employees would come under GST. In another case, the Kerala Appellate AAR (AAAR) had ruled in the case of Caltech Polymers that food expenses recovered from employees for canteen services will attract GST.
The GST clarifications have also laid out a manner of filing of refund of unutilized ITC in case of export of electricity
“The GST Council meeting has taken numerous decisions that would clarify long-pending litigation-prone matters that would promote ease of doing business in India. One of the most critical clarifications is, perquisite provided by an employer to an employee in terms of the employment agreement would be tax neutral. This would certainly arrest the ongoing litigations on this issue,” said Rajat Mohan, senior partner, AMRG Associates.
The Board has also clarified that in case of fake invoicing, no GST can be recovered from the supplier as no supply of goods or services was involved, however, penalty shall be leviable. It further states that the recipient should not be penalized under different provisions of the GST law for the same offence, if penalty has already been levied on the recipient under one provision of GST law.
“With these clarifications the Government has tried to ensure that the GST authorities do not go beyond the scope of law on discovery of such fraudulent instances,” said Jain of KPMG.
Abhishek A Rastogi, partner, Khaitan & Co said with the clarification, there are chances that the arrests on this issue significantly come down.
Regarding the clarification that GST credits could be used to pay for liabilities arising out of departmental audits and assessments, Jain said that it was a much-needed clarification as “some ground level authorities were asking Companies to make cash payments for GST liabilities arising out of the audits and assessments.
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