2019 (4) TMI 1824 - AAAR - GST

Input tax credit rules for employee transportation under GST clarified by Appellate Authority

In Re: M/s. YKK India Private Limited

The Appellate Authority ruled that before 30.08.2018, input tax credit on GST charged for hiring buses for employee transportation is not admissible, but ... Input tax credit - Apportionment of credit and blocked credits - hiring of buses for transportation of employees - hiring of cars for transportation of employees - restriction on “Rent a Cab” service specified in Section 17 (5) (b)(iii) as applicable to input tax credit - time limitation - challenge to AAR decision. What is rent-a-cab? - HELD THAT:- The contentions of the applicant that hiring of buses which can carry large number of passengers would not qualify under “rent-a-cab” is found to be untenable and the activity of the contractor in the instant case, providing buses or cars on hire to the applicant, is specifically covered under the meaning of “rent-a-cab” which makes the impugned supply as ineligible for ITC in terms of Section 17(5) of the CGST/HGST Act, 2017 - further, the appellant had not challenged that the cars and buses hired by them do not fall under the definition of cab. Whether renting of vehicle is different from hiring? - HELD THAT:- It is seen that the taxing statute, do not make any distinction between renting or hiring. Further, irrespective of possession and control of the vehicle, the service so rendered falls within the taxable service. Thus the contention of appellant that hiring of vehicle is different from renting is untenable. Whether input tax credit on GST charged by the contractors for hiring of buses and cars for transportation of employees is admissible when there is a restriction on admissibility of input tax credit on Rent-a-Cab service as provided in section 17(5)(b)(iii) of CGST Act, 2017 and HSGST Act, 2017? - HELD THAT:- Section 17 of the Central Goods and Services Tax Act, 2017 and HSGST, Act, 2017 provides certain restrictions and according to which input tax credit on certain goods or services or both are not admissible - the appellant are fulfilling the conditions as prescribed under Section 16 of CGST Act, 2017 and HSGST Act, 2017. We further find that after amendment, benefit of Input Tax Credit has been extended to the motor vehicles having approved seating capacity of more than thirteen persons when they are used for making taxable supplies of transportation of passengers. Therefore, the appellant is eligible to input tax credit of the GST charged by the Contractor for hiring of buses only having approved seating capacity of more than thirteen persons for transportation of employees after amendment of th Act, ibid with effect from 30.08.2018. The Advance Ruling given by AAR is modified. Issues Involved:1. Eligibility for input tax credit on GST charged for hiring buses and cars for employee transportation.2. Applicability of restriction on 'Rent a Cab' service under Section 17(5)(b)(iii) to input tax credit for hiring buses and cars.Detailed Analysis:1. Eligibility for Input Tax Credit on GST Charged for Hiring Buses and Cars:The appellant, engaged in the supply of slide fasteners, uses various goods and services, including transportation services for employees, and pays applicable GST. The appellant entered into contracts with transportation service providers for hiring buses and cars to facilitate employee transportation to remote factory locations. The invoices raised by contractors include GST classified under HSN 996413, attracting 18% GST.The appellant sought advance ruling on whether they are eligible for input tax credit on GST charged by contractors for hiring buses and cars. The Advance Ruling Authority ruled that input tax credit is not available for GST charged on hiring buses and cars. The appellant contended that the ruling violated principles of natural justice as it did not consider the Department's comments, which agreed with the appellant's eligibility for input tax credit.2. Applicability of Restriction on 'Rent a Cab' Service:The appellant argued that 'hiring' is different from 'renting' and thus the restriction on 'Rent a Cab' service specified in Section 17(5)(b)(iii) should not apply. They cited various legal precedents to support their claim that hiring does not transfer possession and control of the vehicle to the hirer, unlike renting.The Advance Ruling Authority, however, found that any commercial vehicle hired for passenger transportation falls under 'rent-a-cab,' making the supply ineligible for input tax credit under Section 17(5). The Authority noted that the appellant did not challenge the classification of hired vehicles as cabs.Discussion and Findings:The Appellate Authority examined whether 'renting' differs from 'hiring' and whether input tax credit on GST charged for hiring vehicles is admissible under the restrictions of Section 17(5)(b)(iii). The Authority referred to the Finance Act and judicial precedents, concluding that the taxing statute does not distinguish between renting and hiring. Both terms are used synonymously, and the service provided under a rent-a-cab scheme is taxable regardless of possession and control.The Authority also considered the amendments to the CGST Act, 2017, which extended input tax credit to motor vehicles with an approved seating capacity of more than thirteen persons when used for taxable supplies of passenger transportation. Thus, the appellant is eligible for input tax credit on GST charged for hiring buses with more than thirteen seats after the amendment effective from 30.08.2018.Rulings:1. Hiring of Buses for Employee Transportation:- Before 30.08.2018: Input tax credit on GST charged for hiring buses is not admissible.- After 30.08.2018: Input tax credit on GST charged for hiring buses with more than thirteen seats is admissible.2. Hiring of Cars for Employee Transportation:- Input tax credit on GST charged for hiring cars is not admissible both before and after 30.08.2018.3. Applicability of 'Rent a Cab' Restriction to Buses:- The restriction on 'Rent-a-Cab' service applies to input tax credit on GST charged for hiring buses before 30.08.2018. Post-amendment, there is no restriction for buses with more than thirteen seats.4. Applicability of 'Rent a Cab' Restriction to Cars:- The restriction on 'Rent-a-Cab' service applies to input tax credit on GST charged for hiring cars, and this remains unchanged even after the amendment.Order:The Advance Ruling dated 11.07.2018 is modified as specified in the rulings above.