ITC Eligibility for Leasing/Renting Motor Vehicles for Women’s Safety: Tamil Nadu AAR Ruling
Introduction
In a significant ruling, the Tamil Nadu Authority of Advance Ruling (AAR) addressed the eligibility of Input Tax Credit (ITC) on the leasing, hiring, or renting of motor vehicles used to provide transportation facilities for women employees’ safety. The case of M/s CMA CGM Global Business Services (India) (P.) Ltd. highlights the intersection of GST regulations with labor laws, emphasizing compliance with the Tamil Nadu Shops and Establishments Act, 1947 for women’s safety.
This article delves into the AAR’s decision and its implications for businesses ensuring transportation services for women employees.
Key Takeaways from the Ruling
- Obligation for Women’s Safety:
Under the Tamil Nadu Shops and Establishments Act, 1947, businesses are required to provide transportation for women employees working during late hours (8 PM to 6 AM) to ensure safety. - ITC Allowed on Transport Services for Women Employees:
As per Order No. 15/ARA/2024 dated July 15, 2024, the AAR ruled that ITC on services such as renting, leasing, or hiring of motor vehicles can be availed only for women employees and only if the transportation is legally mandated. - Effective Timeline for ITC Availment:
- ITC eligibility is applicable from May 28, 2019, following the introduction of government notification G.O. Ms No. 60 by the Tamil Nadu Government, which made such transportation obligatory.
- ITC is not available for services procured before this date or after statutory deadlines.
- Specific Conditions under Section 16 of CGST Act:
ITC can be availed only when:- No recovery costs are charged from employees for the transportation provided.
- The service invoices are in compliance with Section 16 and Section 17 of the CGST Act, 2017.
Understanding Blocked Credit and ITC Exceptions
Under Section 17(5)(b) of the CGST Act, ITC on motor vehicles is generally blocked. However, the proviso allows ITC if the motor vehicle is used to meet statutory obligations, such as providing transportation to women employees for safety under law.
The CBIC Circular No. 172/04/2022, issued on July 6, 2022, clarifies that:
- ITC is allowed for transport services provided as part of a mandatory legal requirement.
- However, it cannot be claimed retrospectively for periods where legal obligations were not in place or when deadlines for availing ITC have passed.
Case Summary: M/s CMA CGM Global Business Services (India) (P.) Ltd.
Facts of the Case:
The Applicant is engaged in Information Technology Enabled Services (ITeS) and provides back-office support for its parent company. Following legal obligations, the company offered transportation to women employees working beyond 8 PM and paid tax on the leasing/renting of motor vehicles.
- Initially, the company refrained from availing ITC until March 2022, due to uncertainties about eligibility.
- From April 2022, the Applicant started availing ITC and later sought a ruling to clarify the eligibility and scope of ITC on transportation expenses.
Issues Raised Before AAR:
- Is ITC available on tax paid for hiring/leasing motor vehicles to ensure women’s safety?
- Can ITC be availed for all shifts where transport services are provided, regardless of specific employee login/logout times?
- Can ITC be claimed for earlier periods before March 2022?
AAR’s Ruling:
- ITC is eligible only for women employees working during the mandated time frame (8 PM to 6 AM).
- ITC is not retroactive beyond the applicable dates (i.e., from May 28, 2019).
- The full ITC benefit is available only if the service is provided without employee cost recovery.
Eligibility Conditions Under GST Law
To claim ITC, businesses must satisfy the following conditions outlined under Section 16 of the CGST Act:
- Business Use: The goods or services must be used for business purposes, not personal use.
- Tax Invoice Compliance: A valid tax invoice or debit note must be available.
- GSTR Compliance: The supplier must have filed the transaction in Form GSTR-1, and it should reflect in the recipient’s GSTR-2B.
- Time Limit: ITC must be claimed by the earlier of two dates:
- November 30 of the next financial year.
- Date of filing annual returns (GSTR-9) for the relevant year.
Exceptions Where ITC is Blocked Under Section 17(5)
As per Section 17(5) of the CGST Act, ITC is not allowed on motor vehicles unless they are used for:
- Transport of passengers or goods.
- Providing driving or navigation training.
- Mandatory employee benefits required by law, like health insurance or transportation for women employees.
Practical Implications for Businesses
- Comprehensive ITC Strategy:
Companies with women employees working late hours must ensure they comply with labor laws to maximize ITC benefits. - Timely Documentation:
Proper documentation, including tax invoices and GSTR filings, is critical to avoid missing ITC deadlines. - Compliance with CBIC Circulars:
Businesses must stay updated with GST notifications and circulars to ensure compliance with evolving rules.
Conclusion
The ruling by the Tamil Nadu AAR reinforces the importance of statutory compliance for availing ITC on transportation services. Employers can now benefit from ITC on motor vehicle hiring/leasing services for women employees working during mandated hours, provided they meet the eligibility conditions under the CGST Act. However, businesses must ensure timely compliance to avoid losing ITC benefits.
This decision underscores the critical role of GST compliance in aligning tax benefits with social obligations, such as ensuring women’s safety at work.
