Input tax credit available for GST on buses with 13+ seats for employee transport under Section 17(5)

The AAR Kerala ruled that input tax credit is available for GST on hiring buses/motor vehicles with seating capacity exceeding 13 persons for employee transportation, as Section 17(5) restrictions apply only to vehicles with 13 or fewer seats. However, where the applicant recovers transportation costs from employees, input tax credit eligibility is restricted to the portion of costs actually borne by the applicant, not the amount recovered from employees.

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Issues Involved:
1. Eligibility of input tax credit (ITC) on GST charged by the service provider for hiring a bus/motor vehicle with an approved seating capacity of more than 13 persons for employee transportation.
2. Extent to which ITC is available if the applicant bears only part of the transportation cost.

Detailed Analysis:

Issue 1: Eligibility of ITC on GST Charged by Service Provider for Hiring Bus/Motor Vehicle
The applicant, a government-owned public sector company, sought an advance ruling on whether ITC is admissible on GST charged by the service provider for hiring buses with an approved seating capacity of more than 13 persons for transporting employees to and from the workplace.

Contentions of the Applicant:
- The factory operates 24 hours a day in shifts, and is located in a remote area without public conveyance availability at all times.
- The applicant provides transportation facilities in non-air-conditioned buses, charging 5% GST on vehicle hiring charges.
- Section 17(5)(b)(i) of the CGST Act restricts ITC on leasing, renting, or hiring of motor vehicles with an approved seating capacity of not more than 13 persons.
- Citing previous High Court rulings, the applicant argued that transportation of employees to the workplace is directly related to business activities and thus should be eligible for ITC.
- The applicant referenced a Ministry of Finance press release clarifying that services provided by an employer to an employee as part of the employment contract are outside the scope of GST.

Authority's Examination and Findings:
- The Authority examined Sections 16 to 18 of the CGST Act, which stipulate conditions for availing ITC.
- Section 17(5) of the CGST Act, amended effective from 01.02.2019, specifies that ITC is not available for motor vehicles with an approved seating capacity of not more than 13 persons, except under certain conditions.
- The Authority concluded that there is no restriction on availing ITC for motor vehicles with an approved seating capacity of more than 13 persons.

Ruling:
The applicant is eligible to avail the ITC of GST charged by the service provider for hiring buses/motor vehicles with an approved seating capacity of more than 13 persons for employee transportation, subject to the fulfillment of conditions prescribed in Section 16 of the CGST Act, 2017.

Issue 2: Extent of ITC Availability if Applicant Bears Only Part of the Cost
The applicant also sought clarification on whether ITC would be restricted to the extent of the cost borne by the applicant, given that a nominal recovery is made from employees using the transportation facility.

Contentions of the Applicant:
- The applicant issues passes to employees, recovering a nominal amount monthly, and argued that the transportation service does not constitute a supply in the hands of the applicant.
- Citing the Bombay High Court ruling in CCE Nagpur Vs. Ultratech Cements Ltd, the applicant noted that credit is not admissible for the cost borne by the worker and should be proportionately reversed.

Authority's Examination and Findings:
- The Authority noted that the applicant cannot avail ITC for the tax paid corresponding to the cost of transportation recovered from employees.
- The eligibility to avail ITC will be restricted to the extent of the cost of transportation borne by the applicant.

Ruling:
The applicant is eligible to avail ITC only to the extent of the cost of transportation borne by the applicant.

Conclusion:
The Authority for Advance Ruling, Kerala, concluded that:
1. The applicant is eligible to avail ITC on GST charged by the service provider for hiring buses/motor vehicles with an approved seating capacity of more than 13 persons for employee transportation, subject to conditions prescribed in Section 16 of the CGST Act, 2017.
2. The ITC is restricted to the extent of the cost of transportation borne by the applicant.

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