In this article I will give a detailed analysis of advance ruling No. 14/ARA/2023 and Section 17(5) of the CGST Act which deals with blocked input tax credit and it’s ruling for transportation of women employees
Let’s start with example, Aman Rajput & Co booked cab for me to travel from Ajmer to Jaipur, now as rent a cab services are mentioned in section 17(5) of CGST act, 2017 I can not claim ITC on the same, hence Aman Rajput & Co might avoid booking expensive cabs for it’s employees
The Advance Ruling No. 14/ARA/2023, dated 15.06.2023, issued by the Tamil Nadu Authority for Advance Ruling (AAR), addresses a crucial question concerning Input Tax Credit (ITC) eligibility for transportation services provided to women employees under the Goods and Services Tax or CGST Act, 2017, and this case is in highlight after Kolkata case.
In this, the applicant which is, M/s Access Healthcare Services Private Limited, sought clarity on whether the tax paid on input services, specifically related to leasing, renting, or hiring motor vehicles for the transportation of women employees, could be claimed as ITC.
Now after reading this you may think, sentimentally yes it should, but legally it is blocked under section 17(5) of the act
Background of the case
M/s Access Healthcare Services Private Limited is a Private Limited Company registered under GST, providing IT-enabled support services to healthcare sector customers located outside India. Due to the nature of its business, the company operates across different time zones, necessitating employees, including women, to work in shifts extending beyond regular office hours.
As per the Tamil Nadu Shops and Establishment Act, 1947, and relevant government notifications, the company is mandated to provide safe transportation to women employees working between 8:00 PM and 6:00 AM.
In compliance with this legal requirement, the company procures transportation services through leasing or hiring of motor vehicles and provides these services to its women employees without any cost recovery.
The Issue of Input Tax Credit
The central question presented to the AAR was whether the tax paid on the procurement of transportation services for women employees, mandated under state law, is eligible for ITC. The applicant argued that under the CGST (Amendment) Act, 2018, Section 17(5) of the Central Goods and Services Tax (CGST) Act, 2017, which governs the availability of ITC, should be interpreted to allow ITC in such cases. The applicant contended that since the provision of transportation is a legal obligation, the associated tax should qualify for ITC.
Hence as per applicant it should be allowed as per the state law
What is Section 17(5) of the CGST Act?
Section 17(5) of the CGST Act, 2017, plays a pivotal role in determining ITC eligibility. The section outlines circumstances where ITC is blocked, meaning that businesses cannot claim credit for taxes paid on certain goods and services. Specifically, Section 17(5) (as amended) provides that ITC shall not be available for motor vehicles used for the transportation of persons, having a seating capacity of not more than 13 persons (including the driver), except in cases where these vehicles are used for making taxable supplies such as further supply of such motor vehicles, transportation of passengers, or imparting training on driving such vehicles.
Additionally, subsection 17(5)(b) blocks ITC for goods and services like food and beverages, health services, beauty treatments, and leasing or renting of motor vehicles unless they are used to make taxable outward supplies or are mandated under law.
The proviso to Section 17(5)(b) clarifies that ITC can be claimed if the goods or services are obligatory for an employer to provide to employees under any law in force. In the case of Access Healthcare, the Tamil Nadu Shops and Establishment Act legally requires the company to provide transportation for women employees working in late shifts, making the case for the applicability of this proviso.
Analysis of ruling given by AAR
Authority of Advanced Ruling analysed the provisions of Section 17(5) in relation with the applicant’s submissions. It acknowledged that the Tamil Nadu Shops and Establishment Act mandates the provision of safe transportation to women employees working late shifts. However, the short summary of the matter rested on the seating capacity of the vehicles used for transportation. As per the invoices and agreements furnished by the applicant, the vehicles hired had a seating capacity of less than 13 persons (including the driver), might be taxi or cab.
Hence in that sense, AAR referred to the amended Section 17(5), which explicitly blocks the input tax credit for leasing, renting, or hiring motor vehicles used for transportation of passengers if the seating capacity is less than 13 persons, hence legally as per CGST Act, 2017 the ITC for this case should be blocked.
However, since the transportation services in question were provided as a legal obligation under the Tamil Nadu Shops and Establishment Act, the authority examined whether the proviso to Section 17(5)(b) could override the provisions of section 17(5) which is the provision for general blocking of ITC.
Based on this analysis, the AAR ruled that ITC on renting or hiring motor vehicles for transporting women employees working beyond 8:00 PM could be claimed by the applicant. This ruling was based on the legal obligation under the Tamil Nadu Shops and Establishment Act, satisfying the conditions set forth in the proviso to Section 17(5)(b) of the CGST Act dealing with ITC can be availed in case of obligatory services given as stated in any law. Importantly, this ruling is binding on the applicant and the concerned tax authorities unless challenged or overturned by a higher authority.
Conclusion
This Advance Ruling emphasizes the importance of understanding the a very small difference in meaning of Section 17(5) of the CGST Act blocking eligibility of availment of the ITC. While the section generally restricts ITC on motor vehicles used for transporting passengers, the proviso allows exceptions when such services are mandated under applicable laws.
In this case, the Tamil Nadu Shops and Establishment Act provided the legal basis for claiming ITC, thereby providing clarity to businesses facing similar situations. The ruling underscores the need for businesses to closely examine statutory requirements and their implications under GST law when determining ITC eligibility.
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