2022 (8) TMI 1236 - AAR - GST

Admissibility of Input Tax Credit - GST charged by service provider on hiring of bus/motor vehicle having approved seating capacity of more than 13 persons for transportation of employees to and from the workplace - credit restricted to the extent of cost borne by the applicant, or not - HELD THAT - On a plain reading of the provisions of section 17(5), it is evident that only the tax paid on motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver) is not available as input tax credit except under the situations prescribed therein and there is no restriction in availing input tax credit of the tax paid on motor vehicles or hiring or renting of motor vehicles having approved seating capacity of more than thirteen persons. In the instant case, the applicant has engaged the service provider to provide transportation facilities to the employees in non-air-conditioned buses for commuting to and from the workplace and it is stated that the service provider is using motor vehicles having an approved seating capacity of more than thirteen persons (including the driver) for the same - the applicant is eligible for availing input tax credit of the tax paid for hiring of bus/motor vehicle having approved seating capacity of more than 13 persons for transportation of their employees to and from the workplace. Extent to which the input tax credit can be availed by them as they are recovering a part of the cost incurred for transportation from the employees - HELD THAT - The applicant cannot avail of the input tax credit of tax paid corresponding / attributable to the cost of transportation recovered from the employees - the eligibility of the applicant to avail input tax credit will be restricted to the extent of the cost of transportation borne by the applicant.

Issues Involved:
1. Eligibility of input tax credit (ITC) on GST charged by the service provider for hiring a bus/motor vehicle with an approved seating capacity of more than 13 persons for employee transportation.
2. Extent to which ITC is available if the applicant bears only part of the transportation cost.

Detailed Analysis:

Issue 1: Eligibility of ITC on GST Charged by Service Provider for Hiring Bus/Motor Vehicle
The applicant, a government-owned public sector company, sought an advance ruling on whether ITC is admissible on GST charged by the service provider for hiring buses with an approved seating capacity of more than 13 persons for transporting employees to and from the workplace.

Contentions of the Applicant:
- The factory operates 24 hours a day in shifts, and is located in a remote area without public conveyance availability at all times.
- The applicant provides transportation facilities in non-air-conditioned buses, charging 5% GST on vehicle hiring charges.
- Section 17(5)(b)(i) of the CGST Act restricts ITC on leasing, renting, or hiring of motor vehicles with an approved seating capacity of not more than 13 persons.
- Citing previous High Court rulings, the applicant argued that transportation of employees to the workplace is directly related to business activities and thus should be eligible for ITC.
- The applicant referenced a Ministry of Finance press release clarifying that services provided by an employer to an employee as part of the employment contract are outside the scope of GST.

Authority's Examination and Findings:
- The Authority examined Sections 16 to 18 of the CGST Act, which stipulate conditions for availing ITC.
- Section 17(5) of the CGST Act, amended effective from 01.02.2019, specifies that ITC is not available for motor vehicles with an approved seating capacity of not more than 13 persons, except under certain conditions.
- The Authority concluded that there is no restriction on availing ITC for motor vehicles with an approved seating capacity of more than 13 persons.

Ruling:
The applicant is eligible to avail the ITC of GST charged by the service provider for hiring buses/motor vehicles with an approved seating capacity of more than 13 persons for employee transportation, subject to the fulfillment of conditions prescribed in Section 16 of the CGST Act, 2017.

Issue 2: Extent of ITC Availability if Applicant Bears Only Part of the Cost
The applicant also sought clarification on whether ITC would be restricted to the extent of the cost borne by the applicant, given that a nominal recovery is made from employees using the transportation facility.

Contentions of the Applicant:
- The applicant issues passes to employees, recovering a nominal amount monthly, and argued that the transportation service does not constitute a supply in the hands of the applicant.
- Citing the Bombay High Court ruling in CCE Nagpur Vs. Ultratech Cements Ltd, the applicant noted that credit is not admissible for the cost borne by the worker and should be proportionately reversed.

Authority's Examination and Findings:
- The Authority noted that the applicant cannot avail ITC for the tax paid corresponding to the cost of transportation recovered from employees.
- The eligibility to avail ITC will be restricted to the extent of the cost of transportation borne by the applicant.

Ruling:
The applicant is eligible to avail ITC only to the extent of the cost of transportation borne by the applicant.

Conclusion:
The Authority for Advance Ruling, Kerala, concluded that:
1. The applicant is eligible to avail ITC on GST charged by the service provider for hiring buses/motor vehicles with an approved seating capacity of more than 13 persons for employee transportation, subject to conditions prescribed in Section 16 of the CGST Act, 2017.
2. The ITC is restricted to the extent of the cost of transportation borne by the applicant.

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