No GST ITC on transportation of employees which is not obligatory under Law
Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax. According to Section 16(1) of the CGST Act, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 44, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
There are certain situations when ITC cannot be claimed, such as:-
1. A person cannot avail ITC wherein the given motor vehicle is used to transport people and has a seating capacity of less than or equal to 12 +1 (driver)
2. A person cannot claim ITC for the tax paid for the following:-
i. Food and beverages
ii. Outdoor catering
iii. Beauty treatment
iv. Health services
v. Cosmetic and plastic surgery
3. Services of general insurance, servicing, repair and maintenance
4. Sale of membership in a club, health, fitness centre
5. Rent-a-cab services, life insurance, health insurance
6. Travel, benefits extended to employees on vacation such as leave or home travel concession.
7. Works contract
8. Construction of immovable property on own account
9. Composition scheme
10. Non residents
11. Supply for personal use
12. Free samples and goods destroyed
13. Restaurant services
Section 17(5) pertains to blocked credit under CGST Act which states the situations where input tax credit shall not be available.
Let us refer to the case of Prasar Bharti Broadcasting Corporation of India (GST AAR Himachal Pradesh) who sought advance ruling on the issue as to whether input tax credit is available to the applicant on the services availed for hiring of taxis through contractors and what rate of GST will be applicable on the same.
GST will be applicable on the same.
Facts of the Case:-
The Applicant above is a public service broadcaster. The taxpayer avails services of hiring taxis for different purposes as mentioned below:-
- To pick up/ drop shift duty-staff in odd hours.
- This facility is being provided in odd hours to lady-employees, handicapped & general employees.
- Taxis are hired for tour/OB recordings etc. within the state of Himachal Pradesh on different occasions.
- Taxis are also hired to drop shift staff at High Power Transmitter during morning/ evening & for office work during day time.
The question raised by the applicant is whether input tax credit is available to the applicant on the services availed for the aforementioned items through contractors and what rate of GST will be applicable on the same.
Proceedings of AAR
1.The applicant is a registered taxpayer and has entered into agreement for hiring commercially licensed vehicles for transportation of his employees.
2. The question raised by the applicant is whether he is eligible to avail input tax credit of GST paid by the contractor on the services rendered to the applicant.
3. He also wants the authority to clarify on the GST rate applicable on the same.
4.As per Section 16 of the CGST Act, 2017, every registered person shall, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used or intended to be used in the course or furtherance of his business.
5. However, on this availment of input tax credit (ITC), there are exceptions prescribed under Section 17(5) of the CGST Act, 2017, which are provides as under:-
6. According to Section 17(5)(a) and Section 17(5)(aa), ITC 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 13 persons (including the driver), except when they are used for making the following taxable supplies, namely:-
i. further supply of such motor vehicles; or
ii. transportation of passengers, or
iii. imparting training on driving such motor vehicles
b. vessels and aircraft except when they are used for making the following taxable supplies, namely
i. further supply of such vessels or aircraft; or
ii. transportation of passengers; or
iii. imparting training on navigating such vessels; or
iv. imparting training on flying such aircraft
and for transportation of goods
7. According to Section 17(5)(b), ITC shall not be available on 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. Provided that the ITC w.r.t such goods, 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;
8. According to Proviso to Section 17(5)(b) ITC 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.
9. The availability of ITC as per the proviso to section 17(5)(b) is available only on the condition that such goods or service or both is obligatory for an employer to provide to its employees under any law for the time being in force.
10. Since, the applicant has not been able to cite any law under which the service of providing the facility of transportation to his employees is obligatory under any law, therefore ITC will not be available to him.
11. Further as per Circular No. 130/49/2019-GST dated: 31.12.2019, Suppliers of service by way of renting of any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient have an option to pay GST either at 5% with limited ITC (of input services in the same line of business) or 12% with full ITC.
Therefore, in accordance with the above provisions it was ruled that, if the facility provided by a taxpayer for transportation of employees is not obligatory under any law, for the time being in force then No ITC will be available to such a taxpayer. The applicant will however be eligible to claim ITC for the service supplied at 12% GST Rate if the conditions laid down in the second proviso to section 17(5)b are satisfied.
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