This piece I should have written just after the introduction of the Central Goods and Services Tax (Amendment) Act, 2018. But never thought it will become so relevant topic after so many months, which will prompt me to take up this effort now.
If we recall, amongst others, the said Amendment Act has substituted Section 17(5)(a) and 17(5)(b) of the said Act w.e.f 01.02.2019 and in that process, a proviso has been introduced at the end which reads as below:
“Provided that the input tax credit 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.”
Apparently, this proviso is introduced with a good intention, to widen the scope of the input tax credit and thus, a tax payer friendly initiative only. So, what is the problem or, rather, where this problem lies.
Let me clarify, at the outset that there is absolutely no problem with this proviso. Problem is with a colon (:) preceding this proviso. Hence, let us again relook at the revised Section 17(5)(b) in its entirety:
“(b) 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 referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:
Provided that the input tax credit in respect of such goods or 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:
Provided that the input tax credit 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.”
This colon, after sub-clause (iii), is the actual culprit which has technically made this proviso applicable to only Section 17(5)(b)(iii) instead of entire Section 17(5)(b), as it is intended for. Had this been a semi-colon (;) instead of colon (:), it would have been a perfect ending. Alas, that is not the case.
Now, the readers may have two queries:
(a) How are we so sure of the intention of the legislature?
(b) This, if at all considered to be an issue, is there since 01.02.2019 so what is the new?
Let me try to reply them one by one.
Intention of the Legislature:
(a) There is no law in India, at least, I am aware of which has made it a statutory obligation for the employer to provide leave travel or home travel concession to its employees. Therefore, if one attempts to interpret that the said proviso is applicable to Section 17(5)(b)(iii) only and not the entire Section 17(5)(b), then this proviso, without any practical purpose, becomes redundant.
(b) Had the intention been to restrict this proviso to Section 17(5)(b)(iii), why the proviso has reference of “goods”?
(c) The said amendment has been carried out pursuant to GST Council’s decision in its 28th meeting held on 21.07.2018. The Press Release issued by the Ministry of Finance on the very same day has communicated the decisions in brief and with regard to this particular amendment, the same [ref: point 9(e)] reads as below:
“Scope of input tax credit is being widened, and it would now be made available in respect of the following:
(e) Goods or services which are obligatory for an employer to provide to its employees, under any law for the time being in force”
Therefore, the said Press Release, at least, has not conveyed any qualification or restrictive meaning of the said proviso.
(d) Last but not the least, let us refer the section-wise commentary of Ministry of Law and Justice dated 30.08.2018 on the subject Amendment Act. While giving such commentary on Section 17(5)(b), it is mentioned [Ref: page 16]:
“ITC allowed in respect of food and beverages or both where the provision of such goods or services or both is obligatory for an employer to provide to its employees under any law for the time being in force.”
Now, this canteen service has nothing to with Section 17(5)(b)(iii) i.e. leave travel or home travel concession. Therefore, the Commentary of Ministry of Law & Justice has clarified beyond any doubt that the said proviso is not only applicable to Section 17(5)(b)(iii) but it is applicable in the larger context of Section 17(5)(b). Which is also seems to be in line with the intention of the GST Council.
Where is the problem and why certainly it has cropped up after so many months?
Reading till this, the obvious question which may arise is that all these are know from day one, then what is the new now?
The “new” is, the Gujarat Advance Ruling Authority recently in an Advance Ruling delivered in the matter of Tata Motors Limited [ADVANCE RULING NO. GUJ/GAAR/R/39/2021, Dated 30th July, 2021] has dealt with this matter and in brief, has held that the aforementioned proviso is applicable to Section 17(5)(b)(iii) only and not entire Section 17(5)(b). And if we purely go by the law, without reading in between the lines or spirit/intention of the law, then may be as an exception, in this case, I think the interpretation of the AAR is flawless.
Hence, the inherent problem which is there from day one, has now been wrecked up by this AAR and a new avenue of litigation has been open up. I know many dealers going by the spirit/intention of the said proviso have been availing input tax credit on canteen expenses, transport expenses, medical facility etc. which they have to incur under a statutory obligation, in the capacity of an employer. So, now they are exposed to a new legal dispute which they might not even though of in their nightmares.
And this entire litigation is caused due to use of a colon (:), at wrong place, instead of semi-colon (;) which sounds ridiculous but is a harsh reality.
Thanks to “Babus” responsible for drafting the law, again dealers have been put into a fire and will be at the mercy of the Department, till any clarification comes from the Board or till any competent Court is settling the correct legal position.
Till such time, lets hang around between colon (:) and semi-colon (;).