AAR allows Input Tax Credit on GST paid for hiring 49-seater buses under Section 17(5) amendment effective February 2019

AAR Maharashtra ruled that the applicant is entitled to Input Tax Credit (ITC) on GST paid under Reverse Charge Mechanism for hiring 49-seater buses for employee transportation. The authority held that Section 17(5) of GST Act 2017, which previously barred ITC on passenger transport vehicles, was amended effective 01.02.2019 to allow ITC on leasing/renting of motor vehicles with seating capacity exceeding 13 persons including driver. Since the bus service was used for business purposes and had approved seating capacity above the threshold, ITC restriction under Section 17(5) was not applicable. The applicant became eligible for ITC from 01.02.2019 onwards.

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Issues Involved:
1. Eligibility of input tax credit (ITC) on GST paid under Reverse Charge Mechanism (RCM) for hiring buses for employee transportation.
2. Applicability of Section 17(5) of the CGST Act, 2017 regarding blocked credits.
3. Relevant notifications and amendments affecting the eligibility of ITC.

Issue-Wise Analysis:

1. Eligibility of ITC on GST Paid under RCM for Hiring Buses for Employee Transportation:
The applicant, Maanicare System India Pvt Ltd, sought clarification on whether it could avail ITC on GST paid under RCM at 5% for hiring buses to transport employees. The applicant is engaged in providing manpower services and had arranged bus services through N.B.S. Travel to ensure timely transportation of employees to the client's premises.

2. Applicability of Section 17(5) of the CGST Act, 2017:
The applicant argued that under Section 17(5) of the CGST Act, ITC is not available for motor vehicles used for transporting persons with a seating capacity of not more than 13 persons. However, the buses hired by the applicant had a seating capacity of 49, which exceeds the threshold of 13 seats. Therefore, the restriction under Section 17(5) does not apply.

3. Relevant Notifications and Amendments:
The applicant referenced Notification No. 22/2019-CTR dated 30.09.2019, which mandates that the recipient (body corporate) must discharge GST under RCM when the supplier is not required to levy GST. The applicant also cited judicial precedents like YKK India Pvt. Ltd. and Tata Motors Ltd., which support the eligibility of ITC for hiring motor vehicles with more than 13 seats.

The judgment examined Notification No. 22/2019-Central Tax (Rate) and Notification No. 29/2019-Central Tax (Rate), which clarified that suppliers paying 5% GST are not required to charge GST when providing services to corporate entities, thus placing the liability on the recipient under RCM.

Findings:
The authority reviewed the documents and submissions, noting the absence of the jurisdictional officer's input. It was determined that the applicant's outward supply is taxable, and the bus service used for employee transportation is integral to the business operations. The authority confirmed that the applicant is eligible for ITC under Section 16 of the CGST Act, as the services are used in the course of business.

Conclusion:
The authority concluded that the applicant is eligible to avail ITC on GST paid under RCM for hiring buses with a seating capacity exceeding 13 persons, effective from 01.02.2019. This conclusion aligns with the amended provisions of Section 17(5) and relevant notifications.

Order:
The applicant, Maanicare System India Private Limited, is eligible to take input tax credit on GST paid under Reverse Charge Mechanism at 5% for hiring buses for transportation of employees, effective from 01.02.2019.

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