2021 (3) TMI 707 - AAR - GST

Classification of supply - supply of services or not - subsidized shared transport facility provided to employees in terms of employment contract through third party vendors - valuation of subsidized shared transport facility provided to employees under employment contract - classification of activity of arranging transport facility for employees - person liable to pay GST - Rate of GST. HELD THAT - The applicant is transferring the entire amount collected from their employees, to the third party vendor who is providing transport services to their employees. We also observe that the applicant, in his application, has informed that apart from subsidized amount collected from the employees, they are also adding up a considerable amount into it and then paying it to the third party vendor. The applicant is not retaining any amount collected from the employees towards said transportation charges. We further observe that the applicant is in the business of software development and staff augmentation services and not in the business of providing transport service. Rather, this is a facility provided to their employees under the obligation of Law of the Land. Moreover, this activity is not integrally connected to the functioning of their business. Also, the said activity is not a factor which will take their business activity forward. Thus, providing transport facility to its employees cannot said to be in furtherance of business. Thus, arranging the transport facility for the employees and recovery from employees towards such transport facility, under the terms of the employment contract, cannot be considered as supply of service in the course of furtherance of business. Providing transport facility to employees is no where connected with the business of the applicant - thus, we are in unison with the applicant that arranging the transport facility for the employees is definitely not an activity which is incidental or ancillary to the activity of software development, 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. Further, coming to the subsequent questions, it is observed that the subsequent questions in the application apply only when the answer of first question is in affirmative. As we are of the view that arranging transport facility to its employee is not a supply of service, accordingly the remaining questions become redundant and merit no discussion.

Issues Involved:
1. Whether the subsidized shared transport facility provided to employees in terms of employment contract through third-party vendors would be construed as "Supply of service" by the company to its employees.
2. If the answer to the above question is affirmative, how the value of the subsidized shared transport facility provided to employees under the employment contract will be determined by the applicant.
3. If the answer to question 1 is affirmative, under which service classification the activity of arranging transport facility for employees would fall.
4. If the answer to question 1 is affirmative, who would be liable to pay the GST and what rate of GST would be applicable on the value of supply determined under question 2 above.

Issue-wise Detailed Analysis:

1. Whether the subsidized shared transport facility provided to employees in terms of employment contract through third-party vendors would be construed as "Supply of service" by the company to its employees:

The Authority examined whether the subsidized transport facility provided by the applicant to its employees constitutes a "Supply of service." According to Section 7(1) of the CGST Act 2017, "Supply" includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease, or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. The term "Service" is defined under Section 2(102) of the CGST Act 2017 as anything other than goods, money, and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency, or denomination to another form, currency, or denomination for which a separate consideration is charged.

The Authority observed that the applicant is not in the business of providing transport services but in software development and staff augmentation services. The transport facility is provided under the obligation of law and is not integrally connected to the business functioning. The applicant is transferring the entire amount collected from employees to the third-party vendor without retaining any portion. Therefore, providing transport facility to employees is not in furtherance of business and does not constitute a "Supply of service."

2. How the value of the subsidized shared transport facility provided to employees under the employment contract will be determined by the applicant:

Since the answer to the first question is negative, this question becomes redundant and does not merit discussion.

3. Under which service classification the activity of arranging transport facility for employees would fall:

As the answer to the first question is negative, this question also becomes redundant and does not merit discussion.

4. Who would be liable to pay the GST and what rate of GST would be applicable on the value of supply determined under question 2 above:

Given the negative response to the first question, this question becomes redundant and does not merit discussion.

Ruling:

1. The subsidized shared transport facility provided to employees in terms of the employment contract through third-party vendors is not construed as "Supply of service" by the company to its employees.
2. As the first question is answered in the negative, the determination of the value of the subsidized shared transport facility provided to employees under the employment contract is redundant.
3. The classification of the activity of arranging transport facility for employees is redundant due to the negative answer to the first question.
4. The liability to pay GST and the applicable rate on the value of supply determined under question 2 is redundant as the first question is answered in the negative.

Validity:

This ruling is valid only within the jurisdiction of the Authority for Advance Ruling Uttar Pradesh and subject to the provisions under Section 103(2) of the CGST Act, 2017 until and unless declared void under Section 104(1) of the Act.

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