The Hon'ble AAR, Maharashtra in Re: Tata Motors Limited [GST-ARA-23/2019-20/B-46 dated August 25, 2020] held that w.e.f. February 1, 2020 input tax credit ("ITC") shall be available to employer (Tata Motors) on GST charged by service provider on hiring of bus/motor vehicle having seating capacity of more than 13 persons for transportation of employees to and from workplace. Further, no GST shall be applicable on the nominal amounts recovered for the same by employer from its employees as no supply of service. Furthermore, ITC shall be restricted to the extent of cost borne by the employer.
Facts:
Tata Motors ("the Applicant") has engaged service providers to provide transportation facility to its employees, in non-air-conditioned buses having seating capacity of more than 13 person. Service providers are having contract carriage permit issued by the relevant regulator authorities in respect of buses deployed for employees transportation service.
To ensure use of transportation facility only by authorized persons/employees, the Applicant is issuing pass to employees and nominal amount is recovered on monthly basis. In other words, difference between amount paid to service provider and amount recovered from employees is cost to company as salary cost.
Issues:
1. Whether ITC available to Applicant on GST charged by service provider on hiring of bus/motor vehicle having seating capacity of more than thirteen (13) person for transportation of employees to & from workplace?
2. Whether GST is applicable on nominal amount recovered by Applicants from employees for usage of employee bus transportation facility in non-air-conditioned bus?
3. If ITC is available as per question no. (1) above, whether it will be restricted to the extent of cost borne by the Applicant?
Held:
The Hon'ble AAR, Maharashtra in GST-ARA-23/2019-20/B-46 dated August 25, 2020 held as under:
• The supply of services received by the Applicant is used in the course or furtherance of their business and therefore prima facie. they are eligible to take credit of GST charged by their suppliers. However, it is to be seen whether Section 17(5) of the Central Goods and Services Tax Act, 2017 ("CGST Act") debars the Applicant from taking credit. As rightly pointed out by the jurisdictional officer, Section 17(5) of the CGST Act has been amended by CGST (Amendment) Act, 2018 (No. 31 of 2018) dated 29.08.2018 made effective from 01.02.2019 vide Notification No. 02/2019 - C.T.- 2019 dated 29.01.2019.
• It is clear and apparent that Section 17(5) of the CGST Act had clearly debarred ITC on motor vehicles or conveyances used in transport of passengers till the date of the amendment i.e. 01.02.2019. However, with effect from 01.02.2019, ITC has been allowed on leasing, renting or hiring of motor vehicles, for transportation of persons, having approved seating capacity of more than thirteen persons (including the driver). In the subject case, since the Applicant has specifically submitted and as agreed by the jurisdictional officer, that they are using motor vehicles having approved seating capacity of more than thirteen persons (including the driver), the Applicant shall be eligible for ITC.
• Schedule III to the CGST Act, which lists activities which shall be treated neither as a supply of goods nor a supply of services. As per clause 1 of the said Schedule-III, services by an employee to the employer in the course of or in relation to his employment shall he treated neither as a supply of goods nor a supply of services. Since the Applicant is not supplying any services to its employees, in view of Schedule III mentioned above, GST is not applicable on the nominal amounts recovered by the Applicants from their employees in the subject case.
• Reliance was placed in Hon'ble High court of Bombay in the case of CCE, Nagpur v. Ultratech Cement Ltd. [ 2010 (260) E.L.T. 369 (Bom.) ] it was held that ITC is not admissible to the Applicant on part of cost borne by employee and thus ITC will be restricted to the extent of cost borne by the Applicant.
Relevant provision:
Section 17(5)(a) to (b) of the CGST Act:
"17. Apportionment of credit and blocked credits.
(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;
(aa) vessels and aircraft except when they are used––
(i) for making the following taxable supplies, namely:-
(A) further supply of such vessels or aircraft; or
(B) transportation of passengers; or
(C) imparting training on navigating such vessels; or
(D) imparting training on flying such aircraft;
(ii) for transportation of goods;
(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):
Provided that the input tax credit in respect of such services shall be available-
(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;
(ii) where received by a taxable person engaged-
(I) in the manufacture of such motor vehicles, vessels or aircraft; or
(II) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;
(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;
(ii) membership of a club, health and fitness centre; and
(iii) travel benefits extended to employees on vacation such as leave or home travel concession:
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. "
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