2024 (7) TMI 1239 - AAAR - GST

Applicability of GST - Facility of car extended to the employees of the Applicant-Company in the course of employment - HELD THAT - In the instant case, the Appellant-Company reportedly pays the lease premium directly to car leasing company, and the overall salary cost of the related employees will get reduced to the extent of cost incurred by company in relation car facility provided to employees for office purpose. In order to ascertain whether the instant transaction constitutes a Supply or not, the basic fact as to whether the facility extended qualifies as a Perquisite or not, is required to be determined in the instant case. The applicant claims the same to be a perquisite for the employees and in terms of the CBIC Circular dated 06.07.2022, recovery from employees in relation to car lease premium will not be exigible to GST. In the instant case, having paid the lease premium directly to car leasing company, the appellant admittedly deducts the exact amount from the salary of the employees concerned, i.e., to the extent of cost incurred towards the leasing of cars by the Company. Extending a mere facility does not qualify as a perquisite; that a value in monetary terms is required to be extended to the employees; and that the value of perquisite for consideration is restricted to the value of actual monetary gain extended as in Form 12BA. Therefore, the contention of the appellant that extending the facility of car lease is nothing but a benefit extended to the concerned employee, is not sustainable and does not support their stand. The ownership of car by the company and resultant provisioning of services by the company on their own account amounts to supply of services by them, and this aspect has a direct bearing in determining the taxability in the instant case. It is thus opined that within the facts and circumstances of the case, only the actual value in monetary terms extended to the employee concerned in the course of or in relation to employment, qualifies as a perquisite , and it squarely falls within the ambit of entry No. 1 of Schedule III of the CGST/TN GST Acts, 2017. Whereas, the car lease amount recovered in actual terms by the appellant-company while extending the facility of car to its employees, cannot be considered as a perquisite and accordingly taxes under GST are applicable on the same, as it does not get covered under the entry No. 1 of Schedule III of the CGST/TNGST Acts, 2017.

Issues Involved:
1. Applicability of GST on the facility of car extended to employees.
2. Qualification of the car lease facility as a perquisite under the Income Tax Act.
3. Impact of the eligibility criteria for availing the car lease facility.
4. Relevance of ownership of the car in determining its treatment as a perquisite.
5. Submission and consideration of employment contracts and car lease policy.

Detailed Analysis:

1. Applicability of GST on the Facility of Car Extended to Employees:
The Appellant contended that the car lease facility provided to employees should be exempt from GST as it qualifies as a perquisite under the Income Tax Act, 1961. They argued that the facility is part of the employees' overall compensation and should not be considered a business activity. The CBIC Circular No. 172/04/2022-GST dated 06.07.2022 was cited, which clarifies that perquisites provided by the employer to employees in terms of the employment contract are not subject to GST. However, the AAR ruled that GST is applicable as the entire lease premium is recovered from the employees, and thus, it does not qualify as a perquisite.

2. Qualification of the Car Lease Facility as a Perquisite Under the Income Tax Act:
The Appellant argued that the car lease facility should be considered a perquisite under Section 17(2) of the Income Tax Act, which includes any benefit or amenity provided to an employee. They provided an illustration showing that the overall Cost-to-Company (CTC) remains the same whether an employee opts for the car lease policy or not, indicating that it is a benefit extended in lieu of cash salary. The Appellate Authority noted that only the value of the actual monetary benefit extended qualifies as a perquisite, not the entire lease premium recovered from the employees.

3. Impact of the Eligibility Criteria for Availing the Car Lease Facility:
The Appellant contended that the eligibility criteria for availing the car lease facility are immaterial in determining whether it qualifies as a perquisite. They argued that perquisites are benefits provided to certain employees based on their position and are not necessarily extended to all employees. The Appellate Authority agreed that eligibility criteria are immaterial but noted that the AAR had discussed the nature of the facility rather than linking eligibility to taxability.

4. Relevance of Ownership of the Car in Determining its Treatment as a Perquisite:
The Appellant admitted that the car is owned by the company during the lease period but argued that this should not affect its classification as a perquisite. They claimed that the company acts as a facilitator between the car lease company and the employees. However, the Appellate Authority found that the ownership of the car by the company and the recovery of the entire lease premium from employees indicate that the facility does not qualify as a perquisite. The facility is provided on the company's account and amounts to a supply of services, thus subject to GST.

5. Submission and Consideration of Employment Contracts and Car Lease Policy:
The Appellant initially failed to provide employment contracts or excerpts related to the car lease policy. During the personal hearing, they undertook to furnish these documents, which were later submitted. The Appellate Authority reviewed the Car Lease Program under the 'Policy Manual 2024' and noted that the company bears certain costs like road tax and insurance, but the EMI is recovered from the employees' salaries. The Authority concluded that only the actual monetary benefit extended qualifies as a perquisite, not the entire lease premium.

Conclusion:
The Appellate Authority concluded that only the actual value in monetary terms extended to the employee qualifies as a perquisite and falls within the ambit of Entry No. 1 of Schedule III of the CGST/TNGST Acts, 2017. The car lease amount recovered from the employees does not qualify as a perquisite and is subject to GST. The ruling by the AAR in Advance Ruling No. 125/AAR/2023 was modified accordingly.

Order:
The ruling pronounced by the AAR in Advance Ruling No. 125/AAR/2023 dated 20.12.2023 stands modified to the extent discussed above.

← Previous Next →