2020 (9) TMI 352 - AAR - GST

Input Tax Credit allowed for employee bus transport GST costs, subject to employer's cost limit.

The Authority ruled that Input Tax Credit (ITC) is available to the applicant for GST charged by service providers on hiring buses/motor vehicles with ... Input tax credit - leasing, renting or hiring of motor vehicles having approved seating capacity of more than thirteen persons - Schedule III - services by an employee to the employer not a supply - restriction of ITC to extent of cost borne by the employer - exemption for transport by non-air-conditioned contract carriageInput tax credit - leasing, renting or hiring of motor vehicles having approved seating capacity of more than thirteen persons - Whether the applicant is entitled to avail ITC of GST charged on hiring of non AC buses having seating capacity of more than thirteen persons for transportation of employees. - HELD THAT: - The Authority examined Sections 16 and 17(5) of the CGST Act and the amendment effected by the Central Goods and Services Tax (Amendment) Act, 2018 which became effective on 01.02.2019. Prior to the amendment ITC on motor vehicles used for transportation of passengers was generally disallowed. The amendment carved out an exception permitting ITC in respect of leasing, renting or hiring of motor vehicles used for transportation of persons where the vehicle has an approved seating capacity of more than thirteen persons (including driver). The applicant has represented that the buses used have approved seating capacity of more than thirteen persons and the jurisdictional officer concurs. Consequently the applicant is eligible to claim ITC only from the date the amendment took effect. The Authority clarified that if hired vehicles do not meet the seating capacity requirement, ITC would not be available. [Paras 5]ITC is available to the applicant in respect of hiring of such buses, but only with effect from 01.02.2019.Schedule III - services by an employee to the employer not a supply - exemption for transport by non-air-conditioned contract carriage - Whether GST is leviable on the nominal amounts recovered by the applicant from employees for use of the employee bus transportation facility. - HELD THAT: - The Authority found that the applicant is not supplying transportation services to its employees but is a recipient of services provided by an external transporter; the amounts recovered from employees arise from the employer employee relationship. Schedule III of the CGST Act treats services by an employee to the employer in the course of or in relation to his employment as neither a supply of goods nor a supply of services. The exemption under Notification No. 12/2017 CT (Rate) applies only where a supply is taxable in the first place; it does not convert employer recoveries into a taxable outward supply by the applicant. On this basis GST is not applicable on the nominal recoveries from employees in the facts of this case. [Paras 5]GST is not applicable on the nominal amounts recovered by the applicant from its employees for the employee bus transportation facility.Restriction of ITC to extent of cost borne by the employer - Whether, if ITC is available, it must be restricted to the extent of cost borne by the applicant (employer) after accounting for amounts recovered from employees. - HELD THAT: - Both the applicant and the jurisdictional officer relied on pre GST jurisprudence (Bombay High Court in CCE Nagpur v. Ultratech Cements Ltd.) to the effect that where employees bear part of the cost, the credit attributable to that portion is not admissible to the employer. The Authority endorsed this position and, in the facts before it, answered that where ITC is allowable, it should be restricted to the extent of the cost borne by the applicant after accounting for recoveries from employees. [Paras 5]If ITC is available, it is to be restricted to the extent of cost borne by the applicant (employer).Final Conclusion: The Authority ruled that (i) ITC on hiring of non AC buses with approved seating capacity of more than thirteen persons is available to the applicant, but only from 01.02.2019 onward; (ii) GST is not leviable on the nominal amounts recovered from employees for the employee bus facility; and (iii) where ITC is available it must be restricted to the portion of cost actually borne by the employer. Issues Involved:1. Availability of Input Tax Credit (ITC) on GST charged by service providers for hiring buses/motor vehicles with seating capacity over thirteen persons for employee transportation.2. Applicability of GST on nominal amounts recovered from employees for using non-air-conditioned bus transportation facilities.3. Restriction of ITC to the extent of cost borne by the Applicant (employer).Issue-Wise Detailed Analysis:1. Availability of ITC on GST charged by service providers for hiring buses/motor vehicles with seating capacity over thirteen persons:The applicant sought clarity on whether ITC is available on GST charged by service providers for hiring buses with seating capacity exceeding thirteen persons for employee transportation. The relevant legal provisions include Section 17(5)(b)(i) of the CGST Act, 2017, amended from 01.02.2019, which allows ITC on leasing, renting, or hiring of motor vehicles with seating capacity exceeding thirteen persons. The Authority concluded that the applicant is entitled to avail ITC on such services provided the motor vehicles have an approved seating capacity of more than thirteen persons (including the driver). This eligibility is applicable from 01.02.2019 onwards.2. Applicability of GST on nominal amounts recovered from employees for using non-air-conditioned bus transportation facilities:The applicant argued that nominal amounts recovered from employees for bus transportation should be exempt from GST under Notification No. 12/2017-C.T. (Rate). However, the Authority clarified that the transaction between the applicant and its employees, due to the employer-employee relationship, does not constitute a supply under the GST Act. According to Schedule III of the CGST Act, services by an employee to the employer in the course of employment are neither a supply of goods nor services. Consequently, GST is not applicable on the nominal amounts recovered from employees for using the bus transportation facilities.3. Restriction of ITC to the extent of cost borne by the Applicant (employer):The applicant and the jurisdictional officer both cited the precedent set by the Bombay High Court in the case of CCE Nagpur vs Ultratech Cements Ltd, which established that ITC is not admissible on the portion of the cost borne by employees. Thus, ITC is restricted to the extent of the cost borne by the employer. The Authority agreed with this view, confirming that ITC will be limited to the employer's cost.Order:1. ITC is available to the applicant for GST charged by service providers on hiring buses/motor vehicles with seating capacity over thirteen persons for employee transportation, effective from 01.02.2019.2. GST is not applicable on nominal amounts recovered from employees for using non-air-conditioned bus transportation facilities.3. ITC, if available, will be restricted to the extent of the cost borne by the Applicant (employer).