No GST on free bus transportation facility provided to its Employees by Employer

In re Assistant Commissioner (M/s. Emcure Pharmaceuticals Ltd) (GST AAAR Gujarat)

The AAAR, Gujarat in the matter of M/s. Emcure Pharmaceuticals Ltd. (Advance Ruling (Appeal) No. GUJ/GAAAR/APPEAL/2024/09 dated December 30, 2024, dismissed the appeal filed by the Department and reaffirmed the ruling passed by AAR, Gujarat in the case of In Re: M/s. Emcure Pharmaceuticals Ltd. [GUJ/GAAR/R/2022/22 dated April 12, 2022], thereby ruling that Applicant is not liable to pay GST on free bus transportation facility provided to its employees. Further, it was ruled that the ITC on motor vehicle for transportation of person having approved seating capacity of more than 13 persons, not being blocked under Section 17(5)(b)(i) of the CGST Act, and thereby, could be availed by the Applicant.

Facts:

The Assistant Commissionerate, CGST, Ahmedabad North Commissionerate, (“the Appellant”) has filed an appeal before AAAR, Gujarat, against the ruling passed by AAR, Gujarat (“GAAR”) in the case of In Re: M/s. Emcure Pharmaceuticals Ltd. [GUJ/GAAR/R/2022/22 dated April 12, 2022] (“the Respondent”) wherein it was held that:

• GST at the hand of M/s. Emcure is not leviable on the amount representing the employees’ portion of canteen charges which is collected by M/s. Emcure and paid to the canteen service provider.
• GST at the hand of M/s. Emcure is not leviable on free bus transportation facility provided to its employees.
• ITC on GST paid on canteen facility is blocked credit under Section 17(5)(b)(i) of the CGST Act and inadmissible to M/s. Emcure.
• ITC on GST paid on hiring of Bus, having approved seating capacity of more than thirteen persons used for transportation of passengers is admissible.

The Appellant put forth the following points in the appeal filed against the ruling passed:

• GAAR granted erroneous benefit of exemption of GST on free bus transport provided by the Respondent.
• GAAR on one hand held that the GST is not leviable on the Respondent on free bus transportation while on the other hand it was held that ITC on GST paid on hiring bus is admissible.
• Placing reliance upon Section 16(2)(c) of the CGST Act, ITC is not entitled unless the tax charged in respect of such supply has already been paid.
• ITC is admissible only when GST at appropriate rate is paid by the Respondent to the third-party service providers.
• As the Respondent did not recover the amount from its employees for bus transportation there is no employer-employee relationship.
• That the ruling passed relating to point that GST at the hand of the Respondent is not leviable on free bus transportation facility provided to its employees, is erroneous.

Issue:

Whether GST leviable on bus service provided to employee under contractual agreement and whether ITC of such motor vehicle could be availed?

Held:

The AAAR, Gujarat in the matter of Advance Ruling (Appeal) No. GUJ/GAAAR/APPEAL/2024/09 held as under:

• Noted that, the Respondent has arranged the free of cost transportation facility to its employees in non-AC buys, which is provided by the third-party vendor, as part of its HR policy as per the employment agreement.
• Further Noted that, the said issue has been duly clarified by the CBIC vide Circular No. 172/4/2022-GST dated July 06, 2022 wherein on the said issue, the clarification has been issued stating that “Any perquisites provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee are in lieu of the services provided by employee to the employer in relation to his employment. It follows therefrom that perquisites provided 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 when the same are provided in terms of the contract between the employer and employee”
• Opined that, the perquisite of providing free bus transportation by the Respondent to their employee in terms of contractual agreement entered between the Respondent and their employees are in lieu of the service provided by the employee to its employer in relation to the employment and would not be subject to GST.
• Ruled that, the Respondent is not liable to pay GST on free bus transportation facility provided to its employees.
• Further Ruled that, the ITC on motor vehicle for transportation of person having approved seating capacity of more than 13 persons, not being blocked under Section 17(5)(b)(i) of the CGST Act, and thereby could be availed by the Respondent.

Relevant Provisions:

Section 17(5)(a) of the CGST Act:

“5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit 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 thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:-

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving such motor vehicles;”

Schedule III of the CGST Act:

“ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES

1. Services by an employee to the employer in the course of or in relation to his employment.”

Circular No. 172/4/2022-GST dated July 06, 2022:

FULL TEXT OF THE ORDER OF AUTHORITY FOR APPELLATE ADVANCE RULING, GUJARAT

At the outset we would like to make it clear that the provisions of the Central Goods and Services Tax Act, 2017 and Gujarat Goods and Services Tax Act, 2017 (hereinafter referred to as the CGST Act, 2017′ and the `GGST Act, 2017′) are pari materia and have the same provisions in like matter and differ from each other only on a few specific provisions. Therefore, unless a mention is particularly made to such dissimilar provisions, a reference to the CGST Act, 2017 would also mean reference to the corresponding similar provisions in the GGST Act, 2017.

2. The present appeal has been filed under Section 100 of’ the CGST Act, 2017 and the GGS’I’ Act, 2017 by The Assistant Commissioner, Ahmedabad North. Commissionerates (hereinafter referred to as Appliament against the Advance Ruling No. GUEGAAR/I2/2022/22 dated 1 2.4.2022. appeal is filed i i terms of the authorization under Rule 106(3)(a) of the CGST Rules, 2017.

3. Brief v, the facts arc enumerated below for ease of reference:

• The -respondent [M/s. Emcure Pharmaceuticals Ltd 1, provides canto v n & bus transportation facility to its employees as a part and parce of the agreement with the employees; that it is also based on their IR policy;
• the canteen facility is provided at a subsidized rate;
• trans’ ortation facility is provided with no cost to employees;
• that the bus used are non airconditioned, having seating capacity or more than 13 seats;
• canteen. m facility is provided in terms of section 46 of the Factories Act, 948.

4. In view of the foregoing facts, the appellant had sought Advance Ruling on the 1^.).low mentioned question

1. Whether the recoveries made by the Applicant from the employees for providing Canteen facility to its employees are taxable under the GST’ laws?

2. Whether the free of cost bus transport facilities provided by the Applicant to its .,1nployees is taxable tinder the GST laws?

3. Without prejudice, even if GST is applicable in respect of employee recovery towards bus transportation facility, whether the Applicant would he exempted under  the Si . No. 15 of Notification No. 12:2017 — Centi-al Tax (Rate) dated 28 June 2017?

4. A het her input tax credit is admissible to the Applicant for the GST charged paid to vendors on procurement of such services in terms of Sec 16 of c (see 16 of CGST Act, as the ,nine are used in relation to furtherance of business? If yes, would the same be restricted to the portion of cost borne by the Applicant?

5. Consequent to hearing M/s. Emcure Pharmaceuticals Ltd., the Gujarat Authority for Advance Ruling IGAARI, recorded the following findings viz

• that M/s. Emcure arranged a canteen service provider [CST];
• that part of the canteen charges is borne by M/s. Emcure whereas the realigning part is borne by its employees;
• the employees portion of canteen charges is collected by M/s. Emcure’ & paid to the CSP;
• M/s. Emcure has arranged free of cost transportation facility to its employees in non-AC buses which is provided by third party vendor as part of its IR. policy & this facility is as per their agreement with the employees;
• GAAR is not inclined to hold the activities provided by M/s. Emet.re to its employees to be activities made in the course or furtherance of business to deem it as ‘supply’
• that the proviso to section 17(5)(b)(iii) is not connected to this sub-clause of section 1.7(5)(b)(i) & cannot be read into it;
• that ITC on motor vehicles for transportation of persons having approved seating capacity of more than 13 persons is not blocked under section 17(5) of the CGST Act, 2017.

6. The GAAR, vide the impugned ruling dated 12.4.2022, held as follows:

1. GST, at the hands of Mis Emcure, is not leviable on the amount representing the employees portion of canteen charges. which is collected by Ms Encore and paid to the Canteen service provider

2. GST. at the hands of M/ s Emcure. is not leviable on free bus transportation facility provided to its employees.

3. ITC on GST paid on canteen facility is blocked credit under Section 17 1t(5) boti CGST Act and inadmissible to Mis Encore.

4. ITC on CIST paid on hiring of Bus. having approved scantly capacity of more than 13 persons used for transportation of passengers. is admissible.

7. Aggrieved by the aforesaid advance ruling, the appellant ‘Revenue’ is before us, raising the following contentions, viz

• that GAAR erroneously granted benefit of exemption CGST on free bus transport provided by M/s. Erncure;
• that on one hand GAAR held that GST is not leviable on Emcure on free bus transportation while on the other hand it was held that ITC on GST paid on hiring bus, is admissible;
• that in terms of section 16(2)(c), ibid, ITC is not entitled unless the tax charged in respect of such supply has actually been paid;
• ITC is admissible only when GST at appropriate rate is paid by M/s. Emcure to third party service providers;
• that since the respondent does not recover any amount from its employees for bus transportation, there is no employer-employee relationship;
• that the portion of the ruling which states that GST at the hands of M/s. Emcure is not leviable on free bus transportation facility provided to its employees, is erroneous.

8. The respondent has also filed his cross objection, wherein he has raised the following averments viz

• ruling was sought as to whether free of cost bus transportation facility, provided by Emcure to its employees is taxable; that Emcure had received the services from third party service providers on which GST was levied;
• that the ruling nowhere specifies GST exemption for bus transporter who is the third party service provider;
• that Emcure as an applicant cannot seek ruling on behalf of others is third party bus transporter service provider;
• that GAAAR has already held that recovery from employee would not tantamount to supply;
• that the arrangement of free bus transportation facility to employees the respondent, free of cost would not amount to supply under GS.

9. Personal hearing in the matter was held on 15.10.2024, wherein none appeared for the Revenue. However, Shri Harsh Adhyaru, Authorized Signatory app .trod on behalf of the respondent. He also filed a written submission rain ng the Following grounds:

• Review Order No. 6/2022-23 dated 19.5.2022 is mainly for the GST on bus trans Dortation facility provided by the respondent to the employees & the specific para of the grounds of appeal mention that the Facility provided by the respondent to the employee is free hence, the service provider will be exempted from GST which seems to be incorrect interpret lion;
• That the had not sought advance ruling for GST exemption by the service providers engaged in bus transportation of the employees;
• that the service providers levy GST;
• that this facility is provided free of cost;
• that the advance ruling is only to the extent of levy of GST by Emcure in this case not for levy of GST by the service providers;
• that as recipient of the services from third party for bus transportation, GST has been charged by the service provider and paid by the responds it, for which they had not sought exemption of GST.

FINDINGS

9. We have carefully gone through and considered the appeal papers, written submissions filed by the appellant, submissions made at the time of personal hearing , the Advance Ruling given by the GAAR and other materials available on record.

10. This a departmental appeal wherein the main issue raised is that the in the impugns ruling at para 15 (2) that GST at the hands of M/s. Emcure is not leviable o. free bus transportation facility provided to its employee is erroneous & ambiguous. The departmental appeal has further averred that on on hand the (AAR held that GST at the hand of M/s. Emcure is not leviable on free bus transportation & on the other hand held that 1TC on GST paid on hiring of bus is admissible. The next ground is that ITC would only be admissible to . M/s. Emcure when GST at the appropriate rate is paid by them to third party service providers.

11. The departmental appeal thereafter goes on to state that since the respondent do( ; not recover any amount from its employees for providing Free bus transport at on facility there is no employer-employee relationship; the respondent is I able to pay GST to the third party service providers on transportation facility provided by M/s., Emcure to its employees; that to substantiate this averment they have relied on the press release issued by the Ministry of Finance dated 10.07.2017; that if the services arc provided free of charge to all the employees by the employer then the same will not be subjected to CST provided appropriate CST was paid when procured by the employer.

12. On going through the impugned ruling, we find that the respondent has arranged free of cost transportation facility to its employees in non -AC bus, which is provided by a third party vendor, as a part of its 1W. policy and and employment agreement. These facts arc not in dispute. This issue stands clarified by the clarification issued vide circular no. 172/4/2022-GST dated 6.7.2022, the relevant portion of which is extracted below for ease of understanding.

13.  Thus, the  perquisite of provided free bus transportation by the respondent to their employee in terms of contractual agreement entered into between respondent and their employee are lice services  provided by the employer are in lieu of the services provided by employee to employer in relation to his employment and will not be subjected to GST when the same are provided in terms of the contract between the employer and employee.  we therefore concur with view of the GAAR in so far as it hold that M/s Emcure [respondent] is not liable to pay GST on free bus transportation facility provided to its employee.

14. The service provider of transportation service to M/s Emcure. is discharging W-^–1 which is confirmed by the respondent even in his written submission. “I le respondent to substantiate this has also attached few GST bills of independent service provider for reference.

15. also concur with the finding and ruling of the GAAR., which has held that :IC on motor vehicle for transportation of persons having approved seating capacity of more than 13 persons, not being blocked u/s 17(5)(b)(i), ibid , can he availed by the respondent.

15. In view of the above findings, we reject the departmental appeal filed by The  Assistant Commissioner, CGST, Ahmedabad North Commissioner to against Advance Ruling No. GUJ/GAAR/R/2022/22 dated 12.4.2022 of the Gujarat Authority for Advance Ruling.

******

(Author can be reached at info@a2ztaxcorp.com)