Transportation of Employees, Goods and Services Tax - GST

[Kusalava InternationalLimited]

we are mfg co and provide transportation facility to employee from home to factory and factory to home for that we have purchased bus and given to one person(Unregistered Person) to run bus.For that we are paying every month bill to him.(including Diesel,Driver Salaries and his commission)

1.What is the rate of GST to be charged on Bill if he is registered?Please refer SAC Code.

2.Can we claim ITC on that bill?

Posts / Replies

[Praveen Nair]

1. SAC - 9964 @18%.
2. As per section 17(5) of the CGST Act input tax credit shall not be available in respect of motor vehicles and other conveyances except when they are used for making the following taxable supplies;

• Further supply of such vehicles or conveyances.
• Transportation of passengers.
• Imparting training on driving, flying, navigating such vehicles or conveyances.
• For transportation of goods.

Transportation of passengers or transportation of goods means commercial use of such vehicles for transporting either passengers or goods.

If the taxable person transports its own employees free of cost it will not be covered by the aforesaid clause and hence he will not be able to claim benefit of Input Tax Credit in respect of the same.

[KASTURI SETHI]

Transportation of employees is never free.

[Kusalava InternationalLimited]

Thanks for reply

[Ganeshan Kalyani]

GST is applicable and input tax credit is not eligible.

[YAGAY and SUN]

We endorse the view of experts that ITC is not eligible but GST is applicable.

[JSW CEMENTLIMITED]

Dear Experts,

Section 17(5) talks of vehicles and conveyance and not services provided by way of such vehicles. In the instant case, a service provider is using the buses for pick up and dropping the employees from a fixed pick up point to factory and then dropping at the same fixed point. This service cannot be classified in the nature of personal consumption either as the activity is related to business only. Further this transportation service cannot be classified under rent-a-cab service. As such, I feel, GST input tax credit is available in this case. would invite experts counter opinion on this.

[Alkesh Jani]

Sir,

For ready reference please allow me to reproduce relevant portion of Section 17(5) of CGST, Act, 2017.

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

(a) motor vehicles and other conveyances except when they are used––

(I)for making the following taxable supplies, namely:-

(A) further supply of such vehicles or conveyances ; or

(B) transportation of passengers; or…..”

For better understanding meaning of “cab” is important and meaning was assigned in the erstwhile Finance Act (Service Tax) the same is stated below:-

“According to Section 65 (20) "cab" means

(i) a motorcab, or

(ii) a maxicab, or

(iii) any motor vehicle constructed or adapted to carry more than twelve passengers, excluding the driver, for hire or reward:

According to Section 65 (71) "motor cab" has the meaning assigned to it in clause (25) of section 2 of the Motor Vehicles Act, 1988 (59 of 1988); accordingly “Motor Cab” means any motor vehicle constructed or adapted to carry not more than six passengers excluding the driver for hire or reward;

Renting of motor vehicles capable of carrying more than twelve passengers for hire or reward will be leviable to service tax.”

On conjoint reading it can summarized that “employee” cannot be termed as “passengers”. Secondly, motor vehicles having capacity for more than twelve passengers can also be termed as “rent-a-cab” service. Moreover, in GST motor vehicles has been mentioned, therefore, it can be said that all motor vehicles as defined under Motor Vehicles Act, 1988, are covered under “Rent-a-cab” service.

Based on above, I am of the view that ITC is not available in the instant case.

Our experts may correct me if mistaken.

Thanks

[KASTURI SETHI]

Sh.Alkesh Jani Ji, Top most reply. Crystal clear interpretation.

[JSW CEMENTLIMITED]

Sh Alkesh Janiji, appreciate your analysis. But, still I am of the same view that credit of service provided by using the company's bus is available to a manufacturer on the following ground.

In the absence of definition of cab in GST Act, you have to refer the definition given other existing law in force viz; motor vehicle Act only and not repealed law (i.e.section 65(20) of Finance Act which was in in force till 30.06.2012). During Service tax regime, credit on transportation of employees were not available and department has issued a no. of SCNs but in GST transportation of employee would be covered under input tax credit eligibility norm for the reason that bus is not a cab but it is specified as a motor vehicle only in the Motor Vehicle Act, 1988 and transportation of employee in a bus is purely used in furtherance of business of the company. These services are used indirectly for the day to day activity of the plant viz; production, accounting, HR etc. I could not find the definition of Cab in Motor Vehicle Act as it was defined in Section 65(20) of Finance Act.

I would invite opinions all the expert if at all they are still in dis-agreement with my view.

Regards,

V.Venkat Raman

[Alkesh Jani]

Sir, Now let me make little more effort to the query raised. Here, I would say that when any ambiguity arises, the definition although not in the present law but in any law for the time being in force may be accepted. If the contention is that “bus is not a cab”, for that meaning of cab is important, the meaning given in the Cambridge dictionary is “cab means the separate front part of a large vehicle, such as a truck, bus, or train, in which the driver sits”. Now rent-a-cab means renting of the space which controls the motor vehicle. The bus falls as motor vehicle having capacity of carrying more than 12 passengers and falls with the ambit of “Rent-a-cab” service.

Repeating that an employee cannot be termed as “passenger”. If I accept your contention that bus is not a cab then too it is covered under Section 17(5)(a)(i)(B) of CGST Act, 2017, ITC with regards to motor vehicle except for transportation of passenger, is not available.

Let me thank Sh. Kasturiji,Sir for expressing their views.

Our experts may correct me if mistaken.

Thanks

[JSW CEMENTLIMITED]

Sir,

Here the queriest is not asking for eligibility of ITC on Bus, but his query is with regard to services availed for transportation of employees. ITC on buses purchased for the purpose of transportation is not available but services provided by using the buses for transportation of employees are available. The meaning provided in Cambridge english dictionary is with regard to space where the driver sits in a large vehicle like bus, truct and train which can be in normal parlance said to be cabin and in legal parlance cab means either a motor cab or a maxi cab as defined in section 2 of Motor Vehicles Act, 1988.

As I earlier explained the queriest is not asking about the eligibility of ITC on buses purchased. Any ITC is available to a recipient of motor vehicle will be only on two cases i.e. i) he uses such motor vehicles for supply of taxable services, viz; passenger transportaion etc ii) uses such vehicle for transportation of goods.

The main query here is whether ITC on such services using the motor vehicle is available or not. Clearly Bus or Trucks cannot be classified as a cab as such I totally defer with your esteemed view in this case.

Regards,

V.Venkat Raman

[Alkesh Jani]

Sir, In this case also, I am of the view that ITC on the expenses incurred to run a bus, is not available. As this is the facility extended to the employee by the employer, this service is not obligatory for an employer to provide to its employee under any law for the time being in force. However, as there are various decision in the erstwhile law allowing the Credit as input service but that depends upon the facts and circumstances of the case. Further, it is onus on the assessee to prove the nexus.

Request for comments.

Thanks

[JSW CEMENTLIMITED]

Sir

Presently, most of the companies are located in remote areas away from the city, and almost all the companies are providing pick and drop facilities to its staff and sub-staffs for the reason that they reach office and plant in time so that production is not hampered. This facility may be seen as a facility given to employee for the benefit of business only. Unless there is business requirement companies will not extend this facilities. Let's talk about a BPO where can facilities are given to its employees due to time constraint, is it a facility extended to employee? It is mandatory for them to provide this facility. Any services availed for personal consumption of employee is ineligible but here we can not say that facility is given for personal consumption bit it is given for smooth running of plant. As such I strongly believe if at all department challenge, they will loose at higher courts.

I would invite all other expert also to take part in this discussion so that correct stand can be taken.

[KASTURI SETHI]

After a lot of deliberations after going through all the replies I am of the view that ITC is not available. I also agree to the extent that this activity is in furtherance of business but at the same it is excluded specifically by the intetpretainte that employees cannot be treated as passengers. It is clear that the department's intention is not to allow ITC . It is also the intention of legislature. The definition of cab would not help. In my view , the case is not worth fighting. However, there is a slim chance on the ground of challenging the definition of 'passenger' in this context.

[JSW CEMENTLIMITED]

Kasturi sir

I respect your interpretation and experience also. Still I am not convinced as to why we are comparing employees with passenger, employer employee relationship and all. The service is not falling under rent a cab service where eligibility is restricted except it is performed under as an obligation under some law, it can not be said to be a welfare facility, it is used for furtherance of business, it helps people to reach workplace in time attend to their duty timely,. Directly or indirectly it has a bearing on the manufacturing business, still all the experts are negative towards eligibility.

[Alkesh Jani]

Sir, I agree that by way of discussion we may reach to some good conclusion. My participation here is to meet the new horizon.

Now coming to the point, the facility extended to employee is directly or indirectly related with business, is a thought of erstwhile law. As GST is newly born baby and it may take time to reach its maturity level. The credit was not available in the erstwhile law and same is not available in GST also. The thing strike me is that although motor vehicle is mentioned at Section 17(5), where HSN code pertaining to Rent-a-cab is not available and same is also mentioned in same Section of the Act. The reason I find is that the intention of the government is clear of not allowing the ITC in this regards, mentioning Rent-a-cab in section and motor vehicle in same section is because as there is no section governing classification disputes in GST, one may not take credit in guise either as motor vehicle or head Rent-a-cab service.

Now regarding challenging by the department or by an supplier (assessee), in most of the cases the amount is very small compared to the annual turnover, and small entrepreneurs cannot afford the litigation and cost for the same. The grounds of notice, orders and appeal and person representing the case is important and than too the decisions may not be expected or favorable. The case law, as on now, have not attained its finality, I may agree with the contention in future.

Please offer your comments and correct me if mistaken.

Thanks,

[Anubhav Bansal]

Deal All,

I went through entire discussion in this thread which mainly is on eligibility of ITC in this case of services.

Now, I seek experts opinion on what will be the GST treatment of this service in hands of the Company when they are giving this service to employees i.e. will it be consider as "supply" in terms of the provision of CGST act and will company have to discharge GST liability in case:-

1. When the company is recovering partial amount towards this service cost from the employees.

2. When the company is giving this service free of cost.

This question is in light to the AAR, Kerala ruling in case of M/S Caltech Polymers Pvt. Ltd., Malapurram. Can the similar analogy be drawn in this case as well?

Regards,

Anubhav Bansal

[JSW CEMENTLIMITED]

In case the Company is recovering any amount from the employees, then it should be a supply with some consideration and GST would be applicable. If the Company is providing services free of cost to the employees then the service without any consideration will not be a supply as such no GST liability would arise.

[Anubhav Bansal]

I beg to differ here in case when it is provided free of cost. Would like attention on Entry 2 of Schedule 1, which says, activities to be treated as supply even if made without consideration.

In light of this provision, dont you think in either case this will be a supply and company will have to pay GST on it?

[JSW CEMENTLIMITED]

What is specified in Section 25 as referred to in entry no.2 of schedule I

[Anubhav Bansal]

Dear JSW ji,

Extract of Section 25 for ready purusal:

"ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION 1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets. 2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25, when made in the course or furtherance of business: Provided that gifts not exceeding fifty thousand rupees in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both."

Further, as per the explanation to section 15, for the purposes of CGST Act:-

(a) persons shall be deemed to be "related persons" if -

(i) ...........;

(ii) ........;

(iii) such persons are employer and employee;

Conjoint reading of this 2 provisions of the act make this service as taxable even when an employer is giving it for free of cost.

Please let me know your thoughts on the matter and how do you take it?

Regards,

Anubhav Bansal

[JSW CEMENTLIMITED]

Sir,

The provisions quoted are given in some other context but if the facility/perquisites are given by an employer to all employee free of cost, then it is not taxable as per Press release dated 10th July 2017 released by GST Council. the Text of the same is given below for your reference.

PRESS RELEASE It is being reported that gifts and perquisites supplied by companies to their employees will be taxed in GST. Gifts upto a value of ₹ 50,000/- per year by an employer to his employee are outside the ambit of GST. However, gifts of value more than ₹ 50,000/- made without consideration are subject to GST, when made in the course or furtherance of business. The question arises as to what constitutes a gift. Gift has not been defined in the GST law. In common parlance, gift is made without consideration, is voluntary in nature and is made occasionally. It cannot be demanded as a matter of right by the employee and the employee cannot move a court of law for obtaining a gift. Another issue is the taxation of perquisites. It is pertinent to point out here that the services by an employee to the employer in the course of or in relation to his employment is outside the scope of GST (neither supply of goods or supply of services). It follows therefrom that supply 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. Further, the input tax credit (ITC) scheme under GST does not allow ITC of membership of a club, health and fitness centre [section 17 (5) (b) (ii)]. It follows, therefore, that if such services are provided free of charge to all the employees by the employer then the same will not be subjected to GST, provided appropriate GST was paid when procured by the employer. The same would hold true for free housing to the employees, when the same is provided in terms of the contract between the employer and employee and is part and parcel of the cost-to-company (C2C).

I hope this clarifies your query.

regards,

V.Venkat Raman

[Nitika Aggarwal]

According to my view, it shall be covered under heading 9964 as passenger transportation services which is exigible to tax @ 5% provided that credit of input tax charged on goods and services used in supplying the service, other than the input tax credit of input service in the same line of business (i.e. service procured from another service provider of transporting passengers in a motor vehicle or renting of a motor vehicle), shall not be available to the person.

It shall be covered under the slab of 5% as cost of fuel is included in the amount of consideration charged from the concerned person. Thus being a specific entry, we cannot resort to the slab of general entry.

Further, it is advisable to the person, rather than hiring a person for providing such transportation services, the manufacturing company should employ someone to run such buses at its own cost. This will somehow save the commission cost being paid by the manufacturing company to the person.

[HIREGANGE& ASSOCIATES]

My views are as below:

a): 17 (5) (a) not applicable as it blocks credit on "supply of motor vehicles" when supplied "as such" but not on the services provided by using such motor vehicle. Accordingly, no need of considering definition of passenger/employee etc.

b) Restriction in 17 (5) (iii) is on the rent a cab not renting of motor vehicle. Erstwhile Cenvat Credit Rules excluded from the definition of input services "services provided by way of renting of a motor vehicle". If the intention of law makers under GST was to disallow credit on buses, they could have used similar language. (i.e. motor vehicle instead of rent a cab)

c) Cab is defined separately from Motor Vehicle under Motor Vehicle Act which includes vehicle having passenger capacity upto 12 passengers. Thus it is one of the type of motor vehicle but it cannot be said that all cab includes all nature/type of motor vehicles.

Basis above, I am of the view that ITC of hiring charges paid for bus used for transportation of employees should be allowed. But yes, the matter could be litigated as not free from interpretational issues.

[KASTURI SETHI]

Cab is also a motor vehicle. When it is specifically excluded, direct or indirect bearing in the business or furtherance of business has no value. There are case laws to this extent pertaining to pre-GST era. When we say it is not litigation free, then who would like to take risk ? In such situation one should resort to Advance Ruling Authority instead of paying interest and penalty later on. After going through all the replies of experts, still I am of the view that ITC is not admissibie .