Transportation facility charges recovered by employer from employees not taxable, says AAR

Shishir Sinha New Delhi | Updated on September 10, 2020

Transportation facility charges recovered by employers from employees will not attract Goods and Services Tax (GST), Maharashtra’s Authority for Advance Ruling (AAR) has said.

In a recent order on an application by Tata Motors, it, however, said that the company will be eligible for Input Tax Credit (ITC) to the extent of the cost borne.

The company had raised three queries before the authority — whether GST is applicable on the nominal amount recovered from employees for using bus transportation, whether ITC is available to the applicant on GST charged by service providers on hiring of buses having a seating capacity of more than 13 persons, and if ITC is available, whether it will be restricted to the extent of the cost borne by the employer.

The company had submitted that it has engaged service providers for transportation facility to its employees in non-air conditioned buses having a seating capacity of more than 13 persons. Employees using this facility have been issued passes and a nominal amount recovered on a monthly basis. The difference between the amount paid to service provider and the amount recovered from the employees is the cost to company on salary cost.

AAR took note of the provision in the CGST Act which “allows ITC on leasing, renting or hiring of motor vehicles for transportation of passengers having approved seating capacity of more than 13 persons (including driver).” It observed that the applicant recovers a nominal amount on a monthly basis from its employees w.r.t. the said transportation facility and whenever an employee ceases to be in employment with the applicant, he/she fails authorisation to said transportation facility.

Thus, an ‘employer-employee relationship’ is integral to claim the facility and thereby such transaction does not qualify as ‘supply’ under the GST Act.

The authority noted that the applicant is not providing transportation facility to its employees; in fact, the applicant is the receiver of such services in the instant cast. The AAR rejected the applicant’s contentions about its eligibility for GST exemption in respect of nominal amounts of recoveries made from its employees towards bus transportation services.

The AAR clarified that no GST shall be applicable on the nominal amounts recovered by applicant from its employees as no supply of service is provided as per GST law. Further, it said that ITC will be restricted to the extent of the cost borne by the applicant, ie, the employer, while clarifying that if the motor vehicle hired does not have a seating capacity of more than 13 persons (including the driver), the applicant shall not be eligible for ITC.

Published on September 10, 2020

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