ITC on GST charged by service provider on hiring of motor vehicle for transportation of employee.
AAR Maharashtra,
Applicant - Tata Motors Ltd.
ORDER
(Under Section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
No. GST-ARA-23/2019-20/B-46 Mumbai, dt. 25-8-2020
FACTS AND CONTENTION - AS PER THE APPLICANT
1. Applicant has engaged service providers to provide transportation facility to its employees. in non-air conditioned buses having seating capacity of more than 13 person.
2. To ensure use of transportation facility only by authorized persons/employees, Applicant is issuing pass to employees and nominal amount is recovered on monthly basis. In other words, difference between amount paid to service provider and amount recovered from employees is CGST to company as salary CGST.
Questions under Application to AAR
1. The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act. 2017 [hereinafter referred to as '"the CGST Act and MOST Act" respectively] by M/s. Tata Motors Limited, the applicant. seeking an advance ruling in respect of the following questions.
1. Whether input tax credit (ITC) 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 & from workplace?
2. Whether GST is applicable on nominal amount recovered by Applicants from employees for usage of employee bus transportation facility in non-air conditioned bus?
3. If ITC is available as per question no. (1) Above, whether it will be restricted to the extent of CGST borne by the Applicant (employer)?
Analysis
1. Sr. No. 15(b) of Notification No. 12/2017-C.T. (Rate) dated 28-6-2017 exempts service provided for "transport of passengers, with or without accompanied belongings, by non-air-conditioned contract carriage other than radio taxi, for transportation of passengers, excluding tourism, conducted tour, charter or hire". Service providers are having contract carriage permit issued by the relevant regulators authorities in respect of buses deployed for employee transportation service.
2. Section 17(5)(b)(i) of the CGST Act. 2017 has been amended, w.e.f. 1-2-2019, to block ITC on leasing, renting or hiring of motor vehicles having approved seating capacity of not more than 13 persons. Hence ITC is allowed on leasing, renting or hiring of motor vehicles having seating capacity of more than 13 person.
3. By Press release dated 10-7-2017, it was clarified that supply by employer to the employees in terms of contractual agreement of employment entered into between employer and employee (which are treated as a part of salary/CGST to company), will not be subject to GST and expenditure on employee bus transportation service borne by Applicant arc part and parcel of CGST to company. The employee transportation facility is open to all the employees desirous of availing the facility.
4. Section 17(5)(b)(i) of the CGST Act as amended w.e.f. 1-2-2019. inter-alia specifies the supply of Roods and service which is blocked for credit. Relevant abstract of the same is reproduced as under: " food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicle vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purpose specified therein, life insurance & health insurance."
Clause (a) of Section 17(5) of CGST Act restricts ITC on 'motor vehicles for transportation of persons having approved seating capacity of not more than thirteen person (including driver), except when used for specified purpose.
5. From the reading of clause (a) & clause (b) of Section 17(5) of the CGST Act, it is clear that, leasing, renting or hiring of motor vehicle having approved seating capacity of more than thirteen person is admissible for ITC. Hence Applicant would be entitled to avail ITC in the subject case. 6. In subject case even though Applicant recovers nominal amount from its employees, it cannot be said that particular employee has obtained the bus an hire or charter from the Applicants. It is the Applicant who would be eligible for the aforesaid exemption provided to transport of passengers in a non-air conditioned contract carriage.
7. Citing the Order passed by Hon'ble High court of Bombay in the case of CCE. Nagpur v. Ultratech Cements Ltd. as reported in 2010 (260) EL.T 369 (Bom) wherein it was held that, credit is not admissible to manufacturer on part of CGST borne by worker and proportionate credit embedded in CGST of food recovered from employees, needs to be reversed. Applicant has submitted that credit is not admissible to them on part of CGST borne by worker and thus ITC will be restricted to the extent of CGST borne by the Applicant (Employer).
8. The following requirements should be met for availment of input tax credit.
(a) The Vehicle has approved seating capacity of more than 13 persons (including driver).
(b) The service of leasing, renting or hiring is used for furtherance of business as per Section 16(l) of the CGST Act. 217.
(c) The service provider furnishes invoice as per Section 3 1 and Rule 46 of the CGST Act & the CGST Rules, respectively.
(d) All other conditions as prescribed under section 16(2) arc complied.
Judgement
Answer of 1st question
1. To answer the question whether applicant is entitled to avail Input lax credit (ITC) of GST charged on such inward supply as in the subject case, we refer to the provisions of Chapter V of the CGST Act, 2017 comprising of Sections 16 to 21.
2. Section 16 of the CGST Act. 2017. contains provisions with respect to eligibility and conditions for taking ITC. As per Section 16(1). every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in Section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which arc used or intended to be used in the course or furtherance of his business. Hence, ITC in respect of receipt of services is available and can be taken. However, the credit is available subject to such conditions and restrictions and in the manner specified in Section 49 of the CGST Act.
3. We have no doubt that in the subject case, the supply of services received by the applicant is used in the course or furtherance of their business and therefore prima facie, they are eligible to take credit of GST charged by their suppliers.
4 However, while we find that the applicant is eligible to take ITC under the provisions of the CGST Act, it is to be seen whether Section 17 (5) of the said Act debars the applicant from taking credit.
Section 17 (5) has been amended by CGST (Amendment) Act. 2018 (No. 31 of 2018) dated 29-8-2018 made effective from 1-2-2019 vide Notification No. 02/2019 - C.T.- 2019 dated 29-1-2019."
5.2.6 It is clear and apparent after reading old and amended Section 17(5) that it had clearly debarred Input Tax Credit on motor vehicles or conveyances used in transport of passengers till the date of the amendment i.e. 1-12-2019. However with effect from 1-12-2019, 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).
Answer to 2nd Question
1. The second question raised by the applicant is whether GST is applicable on nominal amount recovered by Applicants from their employees for usage of employee bus transportation facility in non-air conditioned bus.
2. Applicant has submitted that they issue pass only to their employees, so that the transportation facility can be used by such employees, for which nominal amount is recovered on monthly basis. They have also submitted that once, employee ceases to be in employment with Applicant, he/she is not authorized to use the transportation facility. In other words, employer-employee relationship is must to avail this facility.
3. In the subject case we find that the applicant is not providing transportation facility to its employees, in fact the applicant is a receiver of such services in the instant case. In the subject case, the transaction between the applicant & their employees, due to "Employer-Employee" relation as slated by the applicant in their submissions, is not a supply under GST Act.
4. To answer the second question we now refer to Schedule III to the CGST Act which lists activities which shall be treated neither as a supply of goods nor a supply of services. As per clause 1 of the said Schedule-Ill. Services by an employee to the employer in the course of or in relation to his employment shall he treated neither as a supply of goods nor a supply of services.
5. Since the applicant is not supplying any services to its employees, in view of Schedule III mentioned above, we are of the opinion that GST is not applicable on the nominal amounts recovered by Applicants from their employees in the subject case.
Answer to 3rd question
The last question raised by the applicant is if ITC is available to them, whether it will be restricted to the extent of CGST borne by the Applicant.
5.4.1 The applicant, citing the decision of the Hon'ble High court of Bombay in the case of CCE, Nagpur v. Ultratech Cements Ltd. as reported in 2010 (260) FLT 369 (Bom) has submitted that ITC is not admissible to Applicant on part of CGST borne by employee and thus ITC will be restricted to the extern of CGST borne by the Applicant.
5.4.2 The jurisdictional officer has also endorsed the view of the applicant and we have no reason to deviate from the view expressed by both, the applicant as well as the jurisdictional officer.