Input Tax Credit on Rent-a-cab Services

Background

♠ Employers across the industries, especially manufacturing companies located at remote locations, provide transport facilities to their employees and workers to enable them to discharge their duties effectively.

♠ Transport facilities include use of Buses, Mini Buses, Travellers, Cabs and Vans.

♠ Often they are a necessary expense which are required to be incurred by employers to retain existing and attract new talent.

♠ However, this service is chargeable to GST and there is confusion among companies whether Input Tax Credit of GST on these services can be availed as this is a necessary expense incurred in the course of furtherance of business.

♠ A detailed analysis of availability of Input Tax Credit on Rent a cab services or Renting of other vehicles is given below

♦ Section 16 (1)

1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, 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 in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person

♦ Section 17 (5) (Prior to 01/02/19)

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) the following supply of goods or services or both—

(b) rent-a-cab, life insurance and health insurance except where––

(c) the Government notifies the services which are obligatory for an employer to provide to its employees under any law f b) the following supply of goods or services or both— or the time being in force; or

(d) such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply;

♦ Section 17 (5) (After 01/02/19)

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:—

(i) further supply of such motor vehicles; or

(ii) transportation of passengers; or

(iii) imparting training on driving such motor vehicles;………….

(iv) vessels and aircraft except when they are used––

(v) for making the following taxable supplies, namely:—

(vi) further supply of such vessels or aircraft; or

(vii) transportation of passengers; or

(ix) imparting training on navigating such vessels; or

(x) imparting training on flying such aircraft;

(xi) for transportation of goods;

(xii) the following supply of goods or services or both—

(xiii) 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:

Conclusion

• Prior to CGST Amendment Act, the ineligibility of ITC was for services under the head ‘rent a cab’. ‘Rent a cab’ being a wide term included all types of motor vehicles which were hired for transportation of employees.
• This was further confirmed by Advance Ruling No. HAR/HAAR/R/2018-19/04 by Haryana Authority for Advance Ruling stating that the words ‘Rent a cab’ implied renting of any commercial vehicle for transportation of passengers and thus ITC on such services is ineligible.
• With the introduction of new provisions w.e.f. 01/02/19, ITC on renting, leasing and hiring of motor vehicles have been disallowed only for vehicles having capacity upto 13 seats. (Section 17(5)(b)(i))
• Thus, in our opinion, ITC can be availed on service of leasing, renting or hiring of motor vehicles under the following conditions w.e.f. 01/02/19:

– The Vehicle has approved seating capacity of more than 13 persons (including driver).

– The service of leasing, renting or hiring is used for furtherance of business as per Section 16(1)

– The service provider furnishes invoice as per Section 31 and Rule 46

– All other conditions as prescribed under Section 16(2) are complied.