2025 (8) TMI 1324 - AAR - GST

Nominal charges recovered from employees not 'supply' under Section 7; trainee charges taxable; ITC allowed under Section 17(5)

In Re: M/s. Suzuki Motor Gujarat Pvt Ltd.,

AAR held that nominal amounts recovered by the applicant from permanent employees for employer-provided dormitory accommodation are not a 'supply' under ... Levy of GST - amount recovered by the Applicant from its employees towards the accommodation facility provided - amount recovered by the Applicant from student trainees towards the accommodation facility provided - eligibility to avail input tax credit of the GST charged by the third-party service provider for the accommodation facility provided to its employees - eligibility to avail input tax credit of the GST charged by the third-party service provider for the accommodation facility provided to student trainees. Whether the amount recovered by the applicant from the employees who are availing accommodation facilities would be considered as a ‘supply’ under the provisions of section 7 of the CGST Act, 2017? - HELD THAT:- In terms of Section 7 ibid, supply means all forms of ‘supply’ of goods/services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. The exception being Schedule I, which includes the activities made or agreed to be made without a consideration and Schedule III, which includes activities which shall be treated neither as a supply of goods or services. Now in terms of circular No. 172/04/2022-GST dated 6.7.2022, it is clarified that perquisites provided by the ‘employer’ to the ‘employee’ in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST when the same is provided in terms of a contract between the employer and employee. It is found that factually there is no dispute that the dormitories accommodation facility is provided by the applicant as part of the company policy. In view of the foregoing, the nominal deduction, made by the applicant from the employees who are availing accommodation facility would not be considered as a ‘supply’ under the provisions of section 7 of the CGST Act, 2017. However, the aforementioned finding is only in respect of permanent employees. Whether GST is liable to be discharged on the amount recovered by the applicant from student trainees towards the accommodation facility provided to them? - HELD THAT:- As far as this question is concerned, even the applicant agrees that the accommodation facility provided to student trainees will be considered as supply as these student trainees are not on the payroll of the applicant and since they are not employees, the facility so provided cannot be termed as a perquisite. Whether ITC of GST charged by the ASP for the accommodation facility provided to its employees and student trainees can be availed by the applicant? - HELD THAT:- The ITC in respect of the accommodation facility provided by the applicant is not blocked under section 17(5), ibid. We find that the Assistant Commissioner, Sales Tax, Unit 11, Ahmedabad, vide his letter has submitted that the ITC is blocked in terms of section 17(5)(b)(i), except when it is provided under statutory obligations - it is not agreed with this since [a] the services do not find a specific mention under section 17(5)(b)(i) and [b] the accommodation services provided to employees, cannot be termed as services used for personal consumption. The personal consumption means that goods or services used for non business purposes like personal use or consumption by partners, directors, proprietors, etc., would not be eligible for ITC. Further, section 17(5)(g), ibid, blocks the ITC when the ‘immediate and ultimate’ use or consumption of any item is for personal benefit of the person (employee or director or any person who can consume on behalf). If the immediate benefit is for the said person but the ultimate benefit is for the supplier company, the credit would not be restricted - ITC will be available to the applicant in respect of accommodation facility provided to its employees. Having said so, it is further held that the ITC on GST charged by the ASP will be restricted to the extent of cost borne by the appellant only. ISSUES PRESENTED AND CONSIDERED 1. Whether amounts recovered by the applicant from its permanent employees towards dormitory accommodation constitute a 'supply' under section 7 of the CGST Act and are liable to GST. 2. Whether amounts recovered by the applicant from student trainees towards dormitory accommodation constitute a 'supply' under section 7 of the CGST Act and are liable to GST. 3. Whether input tax credit (ITC) of GST charged by a third-party accommodation service provider (ASP) for accommodation provided to permanent employees is admissible to the applicant and, if so, to what extent. 4. Whether ITC of GST charged by the ASP for accommodation provided to student trainees is admissible to the applicant. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether recoveries from permanent employees for dormitory accommodation are 'supply' under section 7 Legal framework: Section 7 defines 'supply' to include all forms of supply of goods or services made for a consideration by a person in the course or furtherance of business; Schedule III excludes 'services by employee to employer in the course of or in relation to his employment' from supply; Circular No. 172/04/2022-GST clarifies that perquisites provided by the employer to its employees in terms of the employment contract will not be subjected to GST. Precedent treatment: The applicant relied on multiple advance rulings of various authorities interpreting employer-provided facilities as perquisites not subject to GST. The Authority considered the circular as authoritative guidance. The Respondent (Assistant Commissioner) submitted otherwise but did not produce controlling precedent overturning the circular. Interpretation and reasoning: The Tribunal examined whether (a) there is a contractual/per contractual provision treating accommodation as a perquisite under employment contracts; (b) the recipients are on payroll (permanent employees); and (c) the recovery is nominal and intended to recover cost rather than represent consideration for a supply in the course or furtherance of business. Applying Circular No. 172/04/2022-GST, the Authority found that accommodation furnished under company policy as a perquisite arising from employment does not constitute supply. The Authority noted that Schedule III and the circular together indicate that perquisites provided in terms of employment contract are not subject to GST. The Authority limited this conclusion to permanent employees (i.e., those on payroll) and factual matrix where accommodation is optional and recoveries are nominal/cost-recovery. Ratio vs. Obiter: Ratio - amounts recovered from permanent employees in respect of employer-provided accommodation given as a perquisite under employment contract do not constitute 'supply' under section 7 and are not liable to GST. Obiter - observations regarding absence of profit margin, facilitation role of the employer, and lack of quid pro quo are factual supports but not separately framed as general law beyond the facts. Conclusion: GST is not liable to be discharged on the portion of amounts recovered from permanent employees towards dormitory accommodation (subject to the factual findings regarding employment relationship and nature of recovery). Issue 2: Whether recoveries from student trainees for dormitory accommodation are 'supply' under section 7 Legal framework: Same statutory definition of 'supply' (section 7) and Circular No. 172/04/2022-GST which distinguishes perquisites provided to employees in terms of an employment contract. Precedent treatment: Applicant conceded that student trainees are not employees on payroll and thus not covered by the circular's protection; this position aligns with prior rulings treated by the Authority distinguishing trainees/contractual personnel from employees for GST/perquisite purposes. Interpretation and reasoning: The Authority accepted the applicant's concession and applied the statutory test: student trainees are not employees for the purpose of Schedule III/Circular No.172; the accommodation provided to them is for consideration and in the course or furtherance of business and therefore constitutes supply under section 7. The Authority therefore found recoveries from student trainees to be taxable. Ratio vs. Obiter: Ratio - amounts recovered from student trainees (not on payroll and not employees) for accommodation constitute 'supply' under section 7 and are liable to GST. Obiter - none material beyond the factual concession. Conclusion: GST is liable to be discharged on the portion of amounts recovered from student trainees towards dormitory accommodation. Issue 3: Admissibility and extent of ITC for accommodation provided to permanent employees Legal framework: Section 16(1) entitles ITC where inputs/services are used in the course or furtherance of business; Section 17(5) lists blocked credits, including certain specified services (17(5)(b)) and goods/services used for personal consumption (17(5)(g)). The proviso to 17(5)(b) allows ITC where the inward supply is used to make an outward taxable supply of the same category or is obligatory under law. Precedent treatment: The Authority relied on prior Gujarat Appellate Authority for Advance Ruling decisions (e.g., Tata Motors Ltd) and several GAAR rulings recognizing ITC on employer-provided facilities (transportation, canteen) where used in furtherance of business. The Assistant Commissioner contended that ITC is blocked under 17(5)(b)(i) as akin to personal consumption unless obligatory by law. Interpretation and reasoning: The Authority held that accommodation services provided to employees do not fall squarely within the specific exclusions of 17(5)(b)(i) (which lists food and beverages, outdoor catering, beauty treatment, health services, cosmetic surgery, leasing/renting/hiring of motor vehicles etc.) and are not per se goods/services used for personal consumption under 17(5)(g) where the ultimate benefit accrues to the employer. The Authority distinguished personal consumption (immediate and ultimate personal benefit) from employer-provided facilities where ultimate corporate benefit exists (e.g., facilitating employment services). Consequently, ITC is available under section 16(1). However, where employees pay a portion of the cost (through recoveries), the portion of ITC corresponding to the cost borne by employees cannot be claimed by the applicant; ITC is restricted to the extent of cost borne by the applicant, disallowing proportionate credit attributable to amounts recovered from employees. Ratio vs. Obiter: Ratio - ITC is admissible for GST charged by the ASP for accommodation provided to permanent employees, subject to restriction pro rata to the cost borne by the applicant (i.e., excluding proportionate credit attributable to recoveries from employees). Obiter - discussion distinguishing 'personal consumption' versus corporate benefit and critique of the Assistant Commissioner's reliance on 17(5)(b)(i) in facts where that clause does not specifically list accommodation. Conclusion: Applicant is eligible to avail ITC of GST charged by the ASP for accommodation provided to permanent employees, but ITC must be restricted to the portion of cost borne by the applicant, disallowing credit proportionate to amounts recovered from employees. Issue 4: Admissibility of ITC for accommodation provided to student trainees Legal framework: Sections 16(1) and 17(5) as above; additional principle that ITC is available where inward supplies are used for making outward taxable supplies. Precedent treatment: Applicant and Authority relied on rulings where ITC was allowed where inward services supported an outward taxable supply; Authority considered prior GAAR decisions permitting ITC for similar employee-related services where used in furtherance of business or for making outward taxable supplies. Interpretation and reasoning: The Authority first held that accommodation provided to student trainees constitutes a taxable outward supply (Issue 2). Where the applicant procures accommodation services from ASP and uses them to make an outward taxable supply (i.e., providing accommodation to trainees for consideration), the proviso in section 17(5)(b)(i) and the core principle of section 16(1) permit ITC. The Authority therefore allowed ITC for the accommodation provided to student trainees, noting that the applicant bears the entire cost and GST is discharged on recoveries from trainees. Ratio vs. Obiter: Ratio - ITC is admissible for GST charged by the ASP for accommodation supplied to student trainees because the inward supply is used to make an outward taxable supply. Obiter - none material beyond application of statutory proviso. Conclusion: Applicant is eligible to avail ITC of GST charged by the ASP for accommodation provided to student trainees. Cross-references and clarifications 1. The non-taxability conclusion for permanent employees is fact-sensitive: it hinges on existence of employment relationship (payroll status), provision as a perquisite under the employment contract/policy, nominal/cost-recovery nature of recoveries, and absence of profit motive. Employers with different facts must evaluate applicability. 2. The ITC conclusions distinguish between (a) accommodation provided as a non-taxable perquisite to employees (ITC allowed but restricted to employer's borne cost) and (b) accommodation provided as an outward taxable supply to trainees (ITC allowed unambiguously as supporting an outward taxable supply). 3. The Authority relied on Circular No. 172/04/2022-GST and prior advance rulings as guiding precedents; contrary administrative submissions invoking blocking under section 17(5)(b)(i) were rejected on textual and purposive grounds.