ITC on bus service

[Kaustubh Karandikar]

XYZ taking credit of the GST paid towards Bus service provided by the service provider for transporting their employees from residence to office and back having sitting capacity of more than 13 persons. Can XYZ take credit or will be disallowed being used for the personal consumption of the employees?

[Rajagopalan Ranganathan]

Sir,

1. It can be argued that bringing employees from their home to factory and send them back to their homes after completion of the work entrusted to them is certainly in furtherance of business. Hence gst paid to the service provider is eligible as ITC in the hands of receiver of the service.

OR

2. It can also be argued that the service provided by the service provider is for the personal consumption of the employees and hence under Section 17 (5) (a) of CGST Act ITC is not available. Moreover transportation of employees can not be treated as transportation of passengers.

The issue is subject to the decision of Supreme Court of India. Even if you get favourable decision at the level of CESTAT the department will certainly go on appeal to High Court or Supreme Court. This is my opinion.

[KASTURI SETHI]

It is not litigation free. It is correct to say that employees cannot be treated as passengers for this purpose. However, still there is silver lining.

Hoever, in order to avail ITC, you will have to prove as under:-

(i) that transportation of employees from home to factory & back is an essential input and obligatory on the part of employer.

(ii) It is an input service for supplying output taxable service (supply) and used in furtherance of taxable business/supply.

The order of AAR Haryana in the case of YKK India Pvt. Ltd. reported as 2019 (22) G.S.T.L. 115 (A.A.R. - GST) = 2019 (2) TMI 1081 - AUTHORITY FOR ADVANCE RULING, HARYANAmust be gone through before arriving at any decision. In this case the applicant failed to establish that transportation of employeees was an obligatory on the part of employer. So his application was rejected.

Better to opt for filing an application with AAR. You can take cues from this decision for cementing your grounds of application before AAR.

AI Summary

Input tax credit for employee transport hinges on proving it is an essential, obligatory input used in furtherance of business.
Whether GST paid for employee bus transport is eligible as Input Tax Credit depends on whether the service is a business input used in furtherance of taxable supplies or a service for personal consumption that is disallowed. Claimants must prove transportation is an essential, obligatory input and that it functions as an input service. An AAR (YKK) rejected credit where obligatory nature was not shown. The issue is contested and may attract appeals, so an AAR or strong evidentiary record is recommended.