Question: Whether recovery of 50% of Parental Health Insurance Premium from employees, amounts to supply of service under Section 7 of the Central Goods and Service Tax Act, 2017?”

FACTS OF THE CASE:  M/s. Jotun India Private Limited (hereinafter referred to as “the Applicant”), is a registered person under GST Act and is a manufacturer, supplier and exporter of paints and powder coatings. The Applicant supplies paints and coatings that are specially designed for unique conditions, to the various customers.

The applicant introduced Parental Insurance Scheme for employees’ parents. It is an optional scheme provided to the employees. As per this scheme, the applicant initially pays the entire premium along with taxes to the insurance company. The insurance company issues the premium receipt in the name of the applicant. The applicant thereafter recovers 50 per cent of the premium amount through salary in one installment in case of staff and in three installments in case of operators and balance 50 percent amount is borne by the applicant himself. The applicant has sought for following ruling

“Whether recovery of 50% of Parental Health Insurance Premium from employees’ amounts to “supply of services” under Section 7 of the Central Goods and Service Tax Act, 2017”?

Observation and findings of Authority for Advance Ruling:

1. The Applicant is not in the business of providing insurance coverage instead engaged in the business of manufacturering, supplying and exporting of paints and powder coatings.

2. It is not a mandatory requirement under any law for the time being in force to provide parental insurance cover, and therefore, non-providing parental insurance coverage would not affect its business by any means. Therefore, activity of recovery of 50% of the cost of insurance premium cannot be treated as an activity done in the course of business or for the furtherance of business.

3. Further, Authority for Advance Ruling after having referred the provision of section 7 of CGST Act and definition of Business came to conclusion that the activity undertaken by the applicant like providing of mediclaim policy for the employees’ parent through insurance company neither satisfies conditions of section 7 to be held as “supply of service” nor it is covered under the term “business” of section 2(17) of CGST ACT 2017. Hence, we find that applicant is not rendering any services of health insurance to their employees’ parent and hence there is no supply of services in the instant case of transaction between employer and employee.

4. Final Outcome: Activity of recovery of 50% of the cost of insurance premium cannot be treated as an activity done in the course of business or for the furtherance of business. Thus, no GST is applicable on the recovery.

5. Other Favourable judgement on the similar issue:

In re Posco India Pune Processing Center Private Limited (GST AAR Maharastra), Advance Ruling No. GST-ara-36/2018-19/B-110, Date of Order : 07/09/2018

Source- In re Jotun India Pvt. Ltd (GST AAR Maharashtra), Advance Ruling No. GST-ARA-19/2019-20/B-108, Date of Judgement/Order : 04/10/2019

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