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

[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 .

[Mahadev R]

I wish to agree with Mr.Venkat Raman, Credit restriction should be in relation to motor cab or maxi cab which would cover upto 12 persons. In other cases, credit should be allowed and it would be allowed as gradually credits would become more seamless in future.

[YAGAY and SUN]

Get it clarified from the Law Makers as there are certain words on which no definition is provided in the GST Law.

[Anubhav Bansal]

Dear Venkat Ramanji,

Thanks for sharing the extract of those advertisement. After reading it, I am of the opinion that your conclusion basically is relied upon following extracts of the advertisment "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. "

If this be the case then even the partial recovery form the employee can be said to be a contractual agreement between employer and employee. Then why should this partial recovery from the employees is liable for GST in hands of employer? Reference to the ruling of AAR Kerala bench.

Regards,

Anubhav Bansal

[JAIPRAKASH RUIA]

Very happy to see that experts are discussing the issue and giving their view in a very democratic manner and the level and quality of discussion has improved significantly with this post. I request all the expert involved in this post to be more active and provide the guidance to learner as they are amazing and earned enormous experience in this field.

Reference of Section, rule and circular and press release are just amazing. Let us maintain this quality.

[KASTURI SETHI]

Sh.Jai Prakash Ji,. Thanks for encouraging the experts of this forum.

[Alkesh Jani]

Sir,

In this regards, please allow me to reproduce Section (17)(5) (a) for ready reference:-

(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

(C) imparting training on driving, flying, navigating such vehicles or conveyances;

(ii) for transportation of goods;

Based on above, it is clear that law has very specifically conveyed that ITC is available ONLY for taxable supply i.e. (i) further supply of such vehicles, (ii) for transportation of passengers or goods and (iii) imparting training. In my point of view drop and pick up of employee does not fall within this “namely” services. Moreover, supplies to employer to employee has specifically mentioned in Section and schedules, wherever, benefit is to be granted. So only those supplies including gifts, where specifically mentioned is available to employer. So, I am of the view that ITC is not available.

Thanks

[Anil Sood]

Friends let us have a look at the Apportionment & blocked credit:-

17. (1) Where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.

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

(C) imparting training on driving, flying, navigating such vehicles or conveyances;

(ii) for transportation of goods;

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

(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an inward supply of goods or services or both of a particular category 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;

(iii) rent-a-cab, life insurance and health insurance except where––

(A) the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or

(B) such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply; and

(ii) travel benefits extended to employees on vacation such as leave or home travel concession;

Now, if we look at the definition, the credit of motor vehicle is inadmissible except in the case of buses owned by the Employer because the buses are not engaged for providing services of transportation of passengers.

However, if the Employer hires buses from outside and makes payment to the owner of the buses towards transportation of employees, the Input tax credit, in my view is admissible because without transportation of employees, the business cannot go on. Thus the expenditure is in the nature of input service. In the Service Tax regime similar restriction was imposed but where the rent a cab or buses were hired for transportation of employees, credit was available and in case of my clients exporter of services, I got refunds too. Its the analysis of the facts, agreement and thereafter, presentation how you present your case.

 

[JAIPRAKASH RUIA]

I like the below lines. Good !

It's the analysis of the facts, agreement and thereafter, presentation how you present your case.

[Jasbir Uppal]

In my view also with the view of experts as per provision of section 17(5) of CGST, Act, 2017. GST payable @18% ITC is not eligible on provide transportation facility to employee from home to factory and factory to home