In re Beumer India Pvt. Ltd. (GST AAAR Haryana)
Sub-Section (2) of Section 56 of Income Tax Act 1961 taxes sums received under the Head ‘Income from Other Sources’. Clause (vii)(a) of sub-section (2) of Section 56 includes the sum of money where it exceeds Rupees 50000/- received by an Individual or an HUF without ‘consideration’ as the income from other sources, for taxing under the act. The clause (vii)(c) of the sub-Section (2) of Section 56 includes fair market value of a movable property where it exceeds Rupees 50000/ – received by an Individual or an HUF without ‘consideration’ as the income from other sources, for taxing under the act. Thus it is clear that a sum of money received without consideration is akin to moveable property received as gift/ without consideration.
We find that a gift of the value of Rs.50,000/- given by the employer to an employee during a financial year is not a taxable supply, in terms of Clause 2 of Schedule-I ibid, to the GST Acts. The clause reads as under:-
“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.”
We find that the transactions executed in the course of contractual obligation of an agreement of employment are beyond the scope of GST as clarified in the Press Release dated 10.07.2017, of CBIC.
We hold that provisioning of transport facility provided by the Appellant is exclusive of the contractual obligation of the employer in the course of employment. The same shall be liable to GST, on a value that exceeds the total gift value up to Rs.50000/- given by the Appellant to an employee availing this facility in a financial year.
FULL TEXT OF THE ORDER OF APPELLATE AUTHORITY FOR ADVANCE RULING, HARYANA
The present appeal has been filed under Section 100 (1) of Central Goods and Services Tax Act, 2017/Haryana Goods and Services Tax Act, 2017 (hereinafter referred to as CGST Act/ HGST Act, respectively)by M/s Beumer India Pvt. Ltd. (hereinafter referred to as the “Appellant”) against the Advance Ruling No. HAR/HAAR/R/2020-21/01 issued vide Memo Number 2980 dated 29.10.2020, in Application received by AAR on 13.08.2020.
A copy of order dated 29.10.2020 of the Advance Ruling Authority was received by the appellant reportedly on 12.11.2020 and the appeal has been filed on 27.11.2020 which is within time.
I. BRIEF FACTS OF THE CASE;
M/s Beumer India Pvt. Ltd., Gurugram is engaged in the business of manufacturing/trading of Intralogistics System. They have hired Motor Vehicles on contract basis from a Transport Agency. They are using said vehicles to provide transportation facility to employees in accordance with their human resource policy at either a nominal cost where the vehicles are air conditioned, or free of cost in other cases.
Questions for Advance Ruling:
Applicant had requested for Advance Ruling on:-
a. Whether GST is payable on transportation facility provided by the employer (Applicant) to its employees for travel between predefined location to its the office, free of cost i.e. without any recovery being made from them. If yes what would be taxable value of the said transaction?
b. Whether GST is payable on the recovery of nominal amount on account of air conditioning facility for transportation facility provided by the employer (Applicant) to its employees for travel between predefined location. If yes then what would be the taxable value in the said transaction?
Ruling by Advance Ruling Authority
The Authority for Advance Ruling (AAR) observed that the Business of the Applicant is manufacturing/ trading of intralogistics system which is duly covered in the definition of business and the transport facility being provided to the employees is in the furtherance of the business.
As to the first question whether GST is payable on the transportation facility provided by the Applicant to its employees for travel to office free of cost, the AAR ruled:-
“The abovementioned Service is taxable under the provision of the HGST/ CGST/ IGST Acts. For valuation of such services the provisions under Section 15 of the CGST/ HGST Acts are applicable”.
As to the second question whether GST is payable on the recovery of nominal amount on account of air-conditioning of transportation facility provided by the Applicant to its employees for travel to office, the AAR ruled:-
“The abovementioned Service is taxable under the provision of the HGST/ CGST/ IGST Acts. For valuation of such services, the provisions under Section 15 of the CGST/ HGST Acts are applicable”.
II. GROUNDS OF APPEAL:
Being aggrieved with the impugned order, the appellant filed the appeal with the Grounds of Appeal mentioned in Annexure-II. These are briefly enlisted below:-
a. Authority for Advance Ruling (AAR)’s inferences are extraneous, vague and ambiguous;
b. AAR hasn’t mentioned as to how FBT allowance is a consideration;
c. AAR has wrongly correlated FBT allowance and the transportation facility whereas there is no correlation between the FBT Allowance and the Transportation Facility;
d. AAR has wrongly interpreted the HR Policy. It doesn’t specify that employee not availing transportation facility will get FBT allowance;
e. AAR mentions that element of consideration is present but doesn’t specify as to how element of consideration is present;
f. AAR mentions that Schedule-Ill is not applicable to transportation facility provided by Appellant but doesn’t clarify as to how it is not applicable.
g. AAR has concluded that the activity of provisioning transportation facility is in the Appellant’s furtherance of business but hasn’t taken into consideration the CBIC’s press release dated 10.07.2017 which clarifies that supplies by employer to employee in terms of contractual agreement of employment which is treated as a part of salary is not subject to GST
h. AAR has held the Advance Rulings by other states as not applicable but has not provided reasons therefor;
i. The Advance Ruling pronounced in the case of Tata Motors Ltd. by AAR Maharashtra relied upon by the Appellant in their additional submissions have not been taken into consideration by the AAR;
j. AAR has provided that the activity of providing transportation facility is not exempt whereas the Appellant had not requested for any advance ruling as to exemption;
k. The Ruling granted by AAR that determination of valuation shall be according to Section 15, is ambiguous;
The Appellant made further submitted following as their Grounds of Appeal on 23-03-2021:-
1. That there is no correlation between FBP (Flexible Benefit Plan) allowance and transportation facility and the Hon Tile AAR has erred in linking the two in its order. Such linking is not supported by any documentary evidence submitted by the applicant. The FBP is a separate car leasing policy provided to employees and doesn’t include any component related to conveyance.
2. That the AAR has wrongly drawn conclusions regarding the employees getting additional benefit in lieu of not availing transportation facility, which is in fact an allowance under CLP (Car leasing Policy). The applicant has also submitted a copy of CLP in support of the same.
3. That as per their understanding transportation facility provided free of cost or against nominal recovery doesn’t fall under the definition of consideration. It was incorrect of the AAR to state that there is consideration present in the applicant’s case.
4. That the Hon’ble AAR has wrongly compared the CSR (Corporate Social Responsibility) activities of the company (that of providing transportation facility to employees) to supply in furtherance of business. According to the applicant the comparison doesn’t hold merit as the CSR is a mandatory requirement under Companies Act, 2013; the non-compliance of which may lead to heavy penalties and legal repercussions and may impact the operations of the company to a large extent. Hence this act cannot be said to be done in course of furtherance of business as the two activities are not alike.
5. That the transportation facility is provided to the employees is in course of or in relation to its employment has been rejected by AAR without giving clear reason. The Authority stated in its order that the same in not covered under Schedule III whereas the applicant is of the view that:-
“…if any benefit, by whatever name called, is a right of the employee in terms of the employment contract/employee policy of the entity, then such benefit shall be treated as emoluments arising out of employment and cannot be treated as a supply and is duly covered by Entry 1 of Schedule III of CGST Act, 2017”
The applicant has also submitted a Press release from government dated 10-07-2017 and advance ruling by AAR, Maharashtra in the similar case of Tata Motors Ltd. which rules that such services will not be subjected to GST.
6. that the AAR has given ruling on questions not asked by him (as per para 5.7 of the said ruling), thereby overriding the provision of section 98(4) of the CGST Act, 2017 as it only gives the authority to pronounce a ruling on the questions specified in the application.
7. That the AAR has not given clear and unambiguous ruling w.r.t valuation of such transport services in the questions raised by him and concludes by saying that the Hon’ble AAR has erred both in facts and in law by giving the impugned order which deserves to be set aside. As per his understanding such service, being covered under Entry 1 of Schedule III of CGST Act, doesn’t fall under the definition of supply and consequently GST is not leviable on it.
III. RECORD OF PERSONAL HEARING;
S/Sh. Rajat Mohan, CA; Rajesh Kumar, Sr. Manager; Bharat Sharma, Dy. Manager attended the PH on 25.08.2021 on behalf of the appellant M/s Beumer India Pvt. Ltd. They vehemently pleaded that the transactions within employer/employee relationship have not been envisaged to be taxed under GST. That, this was amply clear from the by the PRESS RELEASE dated 10.07.2017 of the government.
Additionally they reiterated in details the grounds already mentioned in the memorandum of the Appeal and emphasized that the transport facility being a part of their HR policy, squarely is a transaction within employer-employee relationship and thus out of the purview of supplies taxable under GST.
On the specific exclusion of gifts upto 50000/- per employee from the scope of supply vide proviso to clause 2 of Schedule-I as a direct indication of taxability of transactions between employer and the employee even if made without consideration, they repeated that the Press Release ibid was a more surer indication of no taxability.
They specifically requested to take on record the following two items as their submission in support of their case: –
1. PRESS RELEASE dated 10.07.2017 adduced by the Appellant which mentions:-
“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. ”
That, thus, the transport facility which has been provided to the employees under a contract, the same would be out of the scope of GST.
2. Reliance on a similar case decided by the Maharashtra Authority for Advance Ruling in the case of M/s Tata Motors Limited NO.GST-ARA-23/2019-20/B-46 Mumbai, dated 25/08/2020.
IV. DISCUSSION AND FINDING
We have carefully gone through the Grounds of Appeal.
It is observed that the Grounds of Appeal largely question the Ruling granted by the AAR as extraneous, vague and ambiguous. However since all the facts of the case and the application of legal provisions are being carefully examined and discussed afresh, no separate examination of the AAR’s order is being undertaken.
1. CORPORATE SOCIAL RESPONSIBILITY
It is observed that the Appellant’s re-submissions dated 23.03.2021 (supra) are broadly re-worded Grounds of Appeal except the hinted pleading made in these that transportation facility has been provided as a CSR (Corporate Social Responsibility) and non-observance of CSR invites heavy penalties under the Companies Act, 2013.
In this regard it is found that the activity of provisioning transport facility to the members from staff doesn’t fall under CSR. Relevant Section 135 of the Companies Act 2013 reads as under:-
135. Corporate Social Responsibility.-
(1) Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.
(2) The Board’s report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.
(3) The Corporate Social Responsibility Committee shall,-
(a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;
(b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and
(c) monitor the Corporate Social Responsibility Policy of the company from time to time.
(4) The Board of every company referred to in sub-section (1) shall,-
(a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website, if any, in such manner as may be prescribed; and
(b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.
(5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent, of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:
Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:
Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.
Explanation.- For the purposes of this section -average net profit shall be calculated in accordance with the provisions of section 198.
Thus the Corporate Social Responsibility Policy to be formulated by the relevant companies has to take up only from the activities specified in Schedule VII.
The Schedule VII is also reproduced below:
SCHEDULE VII
(See section 135)
Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to:-
(i) eradicating extreme hunger and poverty;
(ii) promotion of education;
(iii) promoting gender equality and empowering women;
(iv) reducing child mortality and improving maternal health;
(v) combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases;
(vi) ensuring environmental sustainability;
(vii) employment enhancing vocational skills;
(viii) social business projects;
(ix) contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and
(x) such other matters as may be prescribed.
From the above it can be inferred that providing transportation facility to the staff members is not covered under the activities prescribed for CSR. The applicability of CSR to this case is thus ruled out.
2. FACTS IN THE CASE and APPLICATION OF LAW
The Appellant M/s Beumer India Pvt. Ltd., Gurugram is engaged in the business of manufacturing/trading of Intralogistics System. They have hired Motor Vehicles on contract basis from a Transport Agency. They are using said vehicles to provide transportation facility to employees in accordance with their human resource policy (HR Policy) at either a nominal cost where the vehicles are air conditioned, or free of cost in other cases.
FBP (FLEXI BENEFIT PLAN) and CLP (CAR LEASING POLICY)
The Appellant has provided the details of their Car Lease Policy under the Flexi Benefit Plan but have stated, “There is no correlation between FBP (Flexi Benefit Plan) Allowance and the Transportation facility. That, the FBP Allowance is an allowance given under CLP (Car Lease Policy) to those who opt to avail the CLP.”
The details of Car Lease Policy (CLP) and the Flexi Benefit Plan (FBP) submitted by the Appellant provide that in terms of the CLP an eligible employee can select a Car falling in the price bracket and the monthly allowance entitled to him under the policy read with the Flexi Benefit Plan (FBP). The Car selected shall be leased-in by the Appellant M/s Beumer India Ltd. (BIL) and be made available to the employee against the deduction of his entitled FBP Allowance. The employee shall be entitled to purchase the car after the lease period which shall not exceed 60 months. Since the Employee is entitled to purchase the car at the end of the lease period, he may go for a shorter lease period and a higher monthly lease rental but the amount of lease rental must fall within his monthly entitlement under FBP.
Only the employees with WL-2 (Work Level – 2) and above can avail; WL-2 is entitled to Cars up to the value of Rs.8 Lakhs subject to individual’s entitled ceiling under FBP. The Work Level – 1 (WL-1) employees aren’t entitled to the CLP and cannot opt for the same.
The following are some of the salient features for the Car Lease Policy as submitted by the Appellant:-
a. The lease rentals include GST.
b. The CLP states that the Flexi Allowance shall be reduced from the Special Allowances in the TFP (Total Fixed Pay).
c. The CLP States that employee cannot opt out until 48 months and one who does, shall pay foreclosure penalty and the GST applicable, as per the terms of the Car leasing company.
d. The employees not opting for CLP shall be paid Special Allowance mentioned in their compensation package.
e. The write-up on ‘Transport Facilities’ mentions that all BIL employees can opt and avail this policy except those who are having FBP Allowance under CLP and availing Income Tax benefit, (Viz. as applicable to Travelling Allowance/ Transport Allowance/ Conveyance Allowance – i.e. as a part of the salary) on the same.
The above features clearly indicate that the CLP is an option for the employee against a component namely ‘Special Allowance’ of the compensation package in the contract of employment.
Appellant’s submission that all BIL employees can opt and avail the Transport Facilities’ (under consideration in the present Appeal except those avail FBP Allowance under the CLP, appear to imply that the Transport Facility is an alternative component within the salary structure/ compensation package.
However, whereas CLP/FBP Allowance and Special Allowance are substitutive/ mutually exclusive components of the salary and only one is available to the employee, the Transport facility is not available against any component of the salary of employees. The Appellant has not adduced any evidence that availment of the facility is vice any matching component available to non-opting employees. Rather, the first of the ‘General Rules’ of Transport Facilities states, “This facility is for the employees based at Gurgaon Office who wish to use a bus service in the morning/ evening for Pick and Drop facility”.
For ready reference, the terms of Transport Facility are being reproduced here:
“TRANSPORT FACILITIES
Objectives
The objective of this policy is to work towards providing a safe, efficient and cost-effective transport facility to BIL employees.
Scope
All BIL corporate employees can avail and opt for this facility, except those who are having FBP Allowance in their salary structure under the Car Lease Policy and availing Income Tax benefits for the same.
General Rules,-
– The facility is for the employees based at Gurgaon Office who wish to use a bus-service in the morning / evening for Pick and drop facility.
– Employees shall connect P&C or Admin Dept, to opt for the Bus Facility and they have to inform P&C and Admin department if wants to discontinue with the facility.
– Company shall provide the bus facility (Pick & Drop) to the employees asper pre-defined location in and around their place of residence.
– Buses shall ply for the general shift only, 8:30 to 5:00 pm. For late siting employees, another bus will be available at 7 pm to drop to the nearest Metro Station.
– There will be no bus service on weekends and holidays
– Employees are required to declare the exact point from where they will board the bus (this information should be synchronous with the present residential address as per the employee data base).
– All bus routes will be planned and laid out by the Admin Team so as to have the buses ply on the man / arterial routs in order to ensure coverage of the maximum area of the city.
– All the employees are expected to carry their ID cards while travelling in the company provided bus/ cab for safety and security reasons.
– Employees are not allowed to change the bus route while commuting to and from office for safety and security reasons. Any deviation will be treated as violation of company rules and company shall not be responsibility for the safety of the employees.
– Employees are requested to appreciate the travelling distance and start time of a bus / cab from the originating point and accordingly anticipate its timing of arrival. This would vary from place to place and would help to reduce the waiting period for an employee.
All employees must ensure a congenial and peaceful environment while travelling in the Bus.”
As discussed supra, the CLP/FBP Allowance and Special Allowance are (mutually exclusive) components of salary structure/ compensation package. Whether the Car lease policy is a 3rd alternative component of the salary structure/ compensation package vice CLP-FBP/ Special Allowance stands replied by the Appellant who, in the re-submitted grounds of Appeal mentions that CLP has no correlation with Transport Facilities. Also from the terms of the Transport Facilities, it is clear that same is available in addition to Special Package, though not in addition to CLP-FBP.
Evidently, the facility is to facilitate employees’ smooth commutation to and from the office, where despite the buses’ fixed routes and waiting involved, it is more suitable to the employee than alternative means. This obviously is aimed to ensure smooth attendance of the employees residing at difficult routes and serves employer’s own business motives. The same clearly is in furtherance of employer’s business.
Further from the terms of the transportation facility, it is clear that same is conditional and is available against an option only. Thus it is observed that the facility is exclusive of the contractual obligation of the employer in the course of employment. Despite the same being provided as the company’s HR policy but is obviously the company’s policy motivated by business requirements. The same is evidently in furtherance of employer-Appellant’s business.
3. APPLICATION OF LAW
