2020 (1) TMI 1124 - AAR - GST

Classification of supply - supply of services or not - amount recovered from the employees towards parental insurance premium payable to the insurance company - pure agent services or not - input tax credit. HELD THAT - The recovery of premium amount from employee and subsequent deposit it with insurance company cannot be treated as supply of service in the course of furtherance of business. Providing insurance facility to employees' parents is no where connected with the business of the applicant - we are in unison with the applicant that facilitating insurance services for employees' parents is definitely not an activity which is incidental or ancillary to the activity of developing software, nor can it be called an activity done in the course of or in furtherance of development of software as it is not integrally connected to the business in such a way that without this the business will not function.

Summary

Issues:
1. Whether the amount recovered from employees towards parental insurance premium is deemed as a "Supply of Service" by the applicant.
2. If the first question is affirmative, whether the value of the supply would be NIL as a "Pure Agent" or what would be the value.
3. If GST is payable on the amount recovered, whether the GST paid by the applicant to the insurance company would be admissible as input tax credit.

Analysis:
1. The applicant, engaged in software development, provides mediclaim coverage to employees and their families. The issue is whether the recovery of parental insurance premium constitutes a "Supply of Service." The CGST Act defines "Supply" and "Service," emphasizing business-related activities. The applicant's main business is software development, not insurance services. Previous rulings support that such recoveries are not considered a supply of service.

2. The recovery of premium from employees for parental insurance, transferred to the insurance company, is not integral to the software development business. The Maharashtra AAR ruling and the applicant's case indicate that this activity does not qualify as a supply in the course of business. The recovery and deposit of premiums do not constitute a service provided by the applicant.

3. The Authority concurs with the applicant that facilitating insurance services for employees' parents is not ancillary to software development. The ruling states that the recovery of parental insurance premiums from employees does not amount to a "Supply of Service" under GST laws. Therefore, the recovery of premiums for parental insurance is not considered a taxable supply, and GST paid on such amounts is not eligible for input tax credit.

Conclusion:
The Advance Ruling Authority determined that the recovery of parental insurance premiums from employees by the applicant does not constitute a "Supply of Service." The ruling is valid unless declared void under the CGST Act provisions.