Employee transportation services denied ITC under Section 17(5) CGST Act as voluntary convenience lacks statutory obligation

The AAAR dismissed the appeal regarding ITC eligibility on GST paid for employee transportation services. The Authority held that under Section 17(5) of CGST Act 2017, ITC is available only when employers are statutorily obligated to provide such services. Since the appellant voluntarily provided transportation as a convenience measure for employees at a remote factory location, no statutory obligation existed. The services constituted personal consumption under Section 17(5)(g) and were classified as non-taxable perquisites per CBIC Circular 172/04/2022. Consequently, ITC on inward supplies for providing non-taxable transportation services was denied.

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ISSUES PRESENTED and CONSIDERED

The core legal question considered in this judgment is whether the appellant, M/s. Kirby Building Systems & Structures India Private Limited, is eligible to claim Input Tax Credit (ITC) with respect to the GST paid on inward supplies used for providing transportation facilities to its employees.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The relevant legal framework includes Sections 16 and 17 of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017), which govern the entitlement and restrictions on input tax credit. Under Section 16 (1), a registered person is entitled to take credit of input tax charged on supplies used in the course or furtherance of business. Section 17 (5) lists exceptions where ITC is not available, including goods or services used for personal consumption.

Court's Interpretation and Reasoning

The Tribunal interpreted Section 17 (5) to mean that ITC is only available if the provision of services to employees is mandated by law. The Tribunal emphasized that the statutory language is clear and unambiguous, requiring a statutory obligation for ITC eligibility. The Tribunal found no statutory obligation for the appellant to provide transportation facilities, classifying such services as personal consumption per Section 17 (5) (g).

Key Evidence and Findings

The appellant argued that the transportation services were provided under a contractual agreement and were necessary for business operations due to the remote location of the manufacturing unit. However, the Tribunal noted that the provision of transport was a matter of personal convenience and not a statutory requirement. The Tribunal also referenced CBIC Circular No: 172/04/2022-GST, which clarifies that perquisites provided by employers under contractual agreements are not subject to GST.

Application of Law to Facts

The Tribunal applied the provisions of Section 17 (5) to the facts, concluding that since the transportation facility was not a statutory obligation, ITC could not be claimed. The Tribunal also noted that since the transportation services were not taxable under GST as per the CBIC circular, ITC on such inward services was not permissible.

Treatment of Competing Arguments

The appellant's argument that ITC should not be restricted due to the lack of statutory obligation was rejected. The Tribunal maintained that a contractual obligation does not equate to a statutory obligation, and thus, ITC could not be availed. The Tribunal also dismissed reliance on advance rulings from other states, emphasizing that statutory clarity overrides such precedents.

Conclusions

The Tribunal concluded that the appellant is not eligible to claim ITC on GST paid for transportation facilities provided to employees, as these are not mandated by law and are for personal consumption.

SIGNIFICANT HOLDINGS

The Tribunal upheld the AAR's decision, emphasizing that "the credit is available only if goods and services, in respect whereof the credit is otherwise blocked, are provided in terms of a statutory obligation." The Tribunal reiterated that transportation services provided as a measure of personal convenience are not taxable, and thus, ITC on such services is not available.

The final determination was to uphold the impugned order dated 15.11.2023 of the AAR, rejecting the appeal filed by the appellant.

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