ITC eligible on Tax Paid for Leasing/Renting Motor Vehicles for Women’s Safety

Summary: In the case of M/s. CMA CGM Global Business Services (India) (P.) Ltd., the Tamil Nadu Authority of Advance Ruling (AAR) ruled that input tax credit (ITC) is available for leasing, renting, or hiring motor vehicles, specifically for providing transportation facilities to women employees as mandated by the Tamil Nadu Shops and Establishments Act, 1947. This provision applies when the employer is required by law to ensure the safety and security of women employees, especially those working during late hours (8 PM to 6 AM). ITC can only be claimed for the tax paid on services directly related to these obligations, starting from May 28, 2019, as per Section 16 of the CGST Act. The ruling emphasizes that the ITC is available exclusively for services benefiting women employees as required by law, with no recovery costs from employees. The AAR also clarified that ITC cannot be claimed for earlier periods beyond the statutory timelines. Additionally, a circular issued in 2022 reaffirmed that ITC on such services is only permissible when mandatory under legal obligations.

The AAR, Tamil Nadu in the case of M/s. CMA CGM Global Business Services (India) (P.) Ltd., In Re [Order No. 15/ARA/2024 dated July 15, 2024] ruled that an Assessee is eligible to avail input services in respect of leasing/ renting/ hiring of motor vehicles of motor vehicles to provide transportation facility to ensure safety and security of women employees as per Tamil Nadu Shops and Establishments Act, 1947 subject to satisfying and fulfilling the eligibility and conditions provided under Section 16 of Central Goods and Services Tax Act, 2017 (“the CGST Act”). Further, Input Tax Credit (“ITC”) shall be available to the Assessee only on the tax paid on services or renting, leasing or hiring of motor vehicles for providing transport facilities to women employees alone who are arriving or leaving workplace between 8 pm to 6 pm. Lastly, ITC on the same shall be available to the Assessee from May 28, 2019 onwards only on satisfying and fulfilling the eligibility provided under Section 16 of the CGST Act.

Facts:

M/s. CMA CGM Global Business Services (India) (P.) Ltd. (“the Applicant”) operated in the Information Technology Enabled Services (“ITes”) sector. It was a captive service provider which was engaged in providing back-office support services to its parent company located outside India.

As per the Tamil Nadu Shops and Establishment, 1947, it is mandatory for the Applicant to provide a transportation facility for the women employees working in the shifts and provide adequate protection of safety for women employees. Therefore, in compliance with the same, the Applicant procured services of renting of motor vehicle for women employees working beyond 8.00 PM. Also, the Applicant has the policy where women employees have to login from 9 pm till 6 am or if leaving after 8pm till 6 am to use cab facility, this facility is provided irrespective of login/logout timing.

The Applicant has been receiving services of leasing/ hiring/ renting of motor vehicles for the transportation of the employees and paid the tax on the same, either on a reverse charge mechanism basis or on payment of consideration to the supplier (where the supplier has raised invoice on forward charge basis (“FCM”)).

No recovery cost was made by the Applicant from the employees for transportation facilities provided to them. The Applicant adopted a position to not to avail ITC for tax paid on services of leasing/renting/hiring of motor vehicles for transportation of employees till March 2022 out of abundant caution and started availing ITC from April 2022 onwards.

In order to gain clarity, the Applicant filed an application before Authority of Advance Ruling on the following issues:

1. Whether tax paid on input services in respect of leasing/renting/hiring of motor vehicles to provide transportation facility to ensure safety and security of women employees as per Tamil Nadu Shops and Establishments Act, 1947 is eligible to avail ITC?

2. If Applicant is eligible, can entire ITC be availed by the Applicant for providing the transport facility on all shifts considering the safety of women as mandated under Tamil Nadu Shops and Establishment Act, 1947?

3. If eligible, can ITC be availed for services received from the date of introduction of proviso to Section 17(5)(b)(iii) of the CGST Act for the periods upto March 2022?

Issue:

Whether the Assessee can avail ITC on the Input Services for leasing/ renting motor vehicles for women’s safety?

Held:

The AAR, Tamil Nadu, in Order No. 15/ARA/2024 held as under:

• Noted that, Section 16 of the CGST Act provides for eligibility and conditions for taking ITC and Sectio 17 of the CGST Act provides for Apportionment of credit and block credits. Section 17(5)(a) and (b) of the CGST Act has been substituted with effect from February 02, 2019 vide Notification No. 02/2019 dated January 29, 2019 as the CGST (Amendment) Act, 2018 dated August 29, 2018. Hence, ITC shall not be levied on services of leasing renting or hiring motor vehicles as it falls under block credit. However, proviso states that ITC in respect of such goods and services or both shall be available where obligatory for an employer to provide the same to its employees under any law for time being in force.
• Observed that, CBIC vide Circular 172/04/2022 dated July 06, 2022 issued by the Ministry of Finance wherein it was clarified that Section 17(5)(b)(iii) is applicable to whole of Section 17(5)(b) of the CGST Act. Further, as per the provisions of Tamil Nadu Shops and Establishment Act, 1947, it is obligatory on the part of the Applicant to provide transport facilities to women employees working beyond 8 pm. Hence, the Applicant is eligible to avail input services in respect of leasing/renting/hiring of women employees subject to satisfying conditions of eligibility provided under Section 16 of the CGST Act.
• Observed that, ITC on such services shall not be available as the same falls under the category of blocked credit and the same becomes eligible for availment as per the proviso to the said sub section that provides ITC in respect in respect of such goods and services or both shall be available, where it is obligatory for an employer to provide the same to its employees under the law for time being force. Hence, ITC shall be available only on the tax paid on services of leasing, renting or hiring or motor vehicles for providing transport facilities to women employees alone who are arriving or leaving workplace between 8 pm to 6 am as the same is mandatory as per the Notification (G.O. Ms No. 60, Labour and Employment (K2) dated May 28, 2019 by the Government of Tamil Nadu.
•  Lastly it was held that, substitution of section 17(5)(b) of the CGST Act came into effect from February 01, 2019 and the Government of Tamil Nadu Notification dated May 28, 2019 made it obligatory for an employer to provide transportation facility to women employees is dated later. Therefore, ITC shall be available to the Applicant from May 28, 2019 onwards on basis of conditions laid down in Section 16 of the CGST Act.
• Held that, ITC should be permitted for FY 2022-23 even though time limit for vailing ITC may have elapsed and issuance of separate clarification through Circular 172/04/2022-GST dated July 06, 2022 makes it clear that ITC on goods and services procured for satisfaction of statutory obligation by an employer would be eligible from the tome or introduction of said proviso not tenable as per the GST Law. A circular is only clarificatory in nature and not a legislation. Whereas notification is to give effect to the law.

Our Comments:

Section 16 of the CGST Act lays down the conditions to be fulfilled by GST registered buyers to claim ITC. The conditions are summarised as follows:

• Such input tax credit is eligible for claims if the goods or services purchased are further used for business purposes and not personal use.
• Buyer must hold such tax invoice or debit note or document evidencing payment towards the purchase.
• Such tax invoice or debit note is filed by the supplier in Form GSTR-1 and it appears in the buyer’s Form GSTR-2B.

Time Limit to avail ITC against an invoice or debit note is earlier of two dates, given below:

• 30th November of the next financial year.
• The date of filing the annual returns in form GSTR-9 relating to that financial year.

Section 17 of the CGST Act lays down the cases where ITC is not available:-

1. Motor vehicles, with a seating capacity of less than or equal to 13 persons (including the driver), goods transport agencies, vessels and aircraft, except for a few cases. So as an exception, ITC is allowed in the below cases:

• • Such motor vehicles and conveyances are further supplied i.e. sold.
  • Transport of passengers and goods.
  • Conveyance is used for imparting training on driving, flying, and navigating such vehicles or conveyances.

2. Services of general insurance, servicing, repair and maintenance relating to motor vehicles, vessels or aircraft.

3. Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic-surgery.
But if the goods and/or services are taken to deliver the same category of services or as a part of a composite supply, the input tax credit will be available

4. Membership in a club, health, and fitness centre.

5. Rent-a-cab, health insurance and life insurance except in the following cases where it is allowed:

• • Government makes it obligatory for employers to provide it to their employees by law.
  • Goods and/or services are taken to deliver the same category of services or as a part of a composite supply, input tax credit will be available.

6. Travel benefits are extended to employees on vacation such as leave or home travel concessions.

7. Works contract service for construction of an immovable property (except plant & machinery or for providing a further supply of works contract service).

8. Goods and/or services for construction of an immovable property whether to be used for personal or business use.

9. Goods and/or services where tax has been paid under composition scheme.

10. Goods and/or services used for personal use.

11. Goods or services or both are received by a non-resident taxable person except for any of the goods imported by him.

12. Goods lost, stolen, destroyed, written off or disposed of by way of gifts or free samples.

13. ITC will not be available in the case of any tax paid due to non-payment of short payment, excessive refund or ITC utilised or availed by the reason of fraud or wilful misstatements or suppression of facts or confiscation and seizure of goods.

14. Special cases: standalone restaurants will charge 5% GST but cannot enjoy ITC on inputs

15. The expenditure spent on Corporate Social Responsibility (“CSR”) initiatives by corporates.

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