2025 (3) TMI 1292 - AAAR - GST

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 ... Eligibility to claim ITC in respect of the GST paid on inward supplies used for providing transportation facilities to employees - HELD THAT:- As per Section 16 (1) of CGST Act, 2017, every registered person shall, subject to such conditions and restrictions as may be prescribed and, in the manner, specified in Section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business. Section 17 of the CGST Act, 2017 provides for apportionment of credit and blocked credit. Section 17 (5) of the Act restricts the input tax credit subject to the conditions prescribed therein. Section 17 (5) has been amended by CGST (Amendment) Act, 2018 (No: 31 of 2018) dt: 29.08.2018 made effective from 01.02.2019, vide N/N. 02/2019-CT dt: 29.01.2019. The proviso to the Section 17 (5) clearly stipulates that input tax credit shall be available only if it is obligatory on the part of the employer to provide the impugned services to its employees under any law. This is a substantial condition to be complied for getting the benefit of input tax credit. The appellants are under no statutory obligation to provide transportation facility to their employees. This facility has been provided to the employees as a measure of personal convenience since the factory is stated to be located in the remote area. In terms of Section 17 (5) (g) of CGST ACT, 2017, input tax credit is not available in respect of goods or services or both used for personal consumption. CBIC vide Circular No: 172/04/2022-GST dt: 06.07.2022 has clarified that various perquisites provided by the employer to its employees in terms of contractual agreement entered into, are in lieu of the services provided by employee to the employer in relation to his/her employment and fall under the category of Schedule III to the CGST act and hence will not be subjected to GST - In the instant case, transportation services are provided as a perquisite by the employer in terms of contractual agreement and hence the amounts recovered from the employees held as not taxable by the Advance Ruling Authority. On this count alone, when transport services provided by the appellant to their employees are not taxable, the ITC on such inward services availed by them towards providing such non-taxable services is not allowed. Conclusion - The transportation services provided as a measure of personal convenience are not taxable, and thus, ITC on such services is not available. Appeal dismissed. ISSUES PRESENTED and CONSIDEREDThe 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 ANALYSISRelevant Legal Framework and PrecedentsThe 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 ReasoningThe 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 FindingsThe 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 FactsThe 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 ArgumentsThe 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.ConclusionsThe 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 HOLDINGSThe 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.