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The issue regarding allowing of availability of input tax credit relating to the facilities provided to the employees by the companies has been a point of dispute between the taxpayers and department since inception of GST regime. AAR has always given a regressive ruling i.e. not in favour of taxpayers. In this update we will discuss the ruling in case of Prasar Broadcasting Corporation of India (All India Radio) pronounced by AAR, Himachal Pradesh.

The AAR rejected the appellant contention based on Section 16(4) that ITC on supply of goods and services are intended to be used in the course or furtherance of business.

The AAR held that rent a cab services availed by the applicant for transportation of employees are covered under clause (b) of Section 17(5) and will be allowable only on the condition that such goods or services or both is obligatory for an employer to provide to its employees under law for the time being in force. Since, applicant has not been able to cite any law under which the services of providing the facility of transportation to its employees is obligatory under any law, therefore, ITC will not be available to applicant.

Input Tax Availability on Transportation of employees

However, due to COVID-19 pandemic situation, Various Guidelines and orders have been issued periodically by the Ministry of Home Affairs under provisions of DMA. Some of the important measures to be followed by employers and which are relevant for present discussion are as below:


2. For workers coming from outside, special transportation facility shall be arranged without any dependency on the public transportation system

Many State Governments made it mandatory for Factories and Offices to provide pick and drop facility to the residence to its employees and workers. Further, some State Government makes it mandatory for BPOs, Corporate and other Offices and Factories to drop their women employees at their homes during night hours and also confirm their safe arrival. So, in this scenario, Input Tax Credit on Transportation of Women Employees and Workers will be available to taxpayer.

Hiring, leasing or renting of motor vehicle is not eligible ITC unless mandated under any law for the time being in force. MHA guidelines require that special transportation facility shall be arranged without any dependency on the public transportation system for workers coming from outside. There is no defined meaning of outside‘. It could be construed as provision of transportation facility for workers not staying in the factory or place of business. Hence, in our view, all employees would get covered where transportation facility is provided for their commutation. ITC in such cases may be summarized as below:

Transportation through MV having more 13 seating capacity

Eligible irrespective of MHA guidelines

Transportation through other motor vehicle (renting, hiring or leasing of Motor Vehicle)         

Eligible subject to MHA guidelines

In this period of economic difficulties, the businessmen are finding out ways of cost-cutting. It is advisable to closely look at all expenditure where input tax credit has not been taken in the past to evaluate if there exist possibilities of availing due to change in the law or judicial developments. There could be possibility of revenue taking a conservative view on many of such credits for the larger interest of the public.

Reference to Relevant Act and Rules:

Section 17(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:


(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:

(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles;


(b) the following supply of goods or services or both—

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;



Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.”.


Published by

Pradeep Jain
(Finance Professional)
Category GST   Report

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