GST applicable on Car facility extended to employees when the amount of car lease incurred by the company is recovered from employees

The AAAR, Tamil Nadu in the case of M/s Faiveley Transport Rail Technologies India (P.) Ltd., In Re [A.R. Appeal No. 03/2024 AAAR dated July 10, 2024] upheld the ruling passed by AAR Tamil Nadu wherein it was ruled that GST would be applicable on Car facility extended to employees when the amount of car lease incurred by the company is recovered from employees as the said transaction would not be covered under Entry 1 of Schedule III of Central Goods and Services Tax Act ("the CGST Act").

Facts:

M/s Faiveley Transport Rail Technologies India (P.) Ltd. ("the Appellant") was engaged in manufacturing, supplying and exporting equipment for the Rolling Stock industry. The Appellant had filed an application for Advance Ruling before AAR Tamil Nadu concerning the applicability of the GST on facility of car extended to the employees of the Appellant company in the course of employment who vide Ruling No.125/ AAR/ 2023 dated December 12, 2023 ("the Impugned Ruling") ruled that GST would be applicable on the facility of car service extended to the employees of the Appellant in case where the Appellant pays the lease premium directly to car leasing company and overall-salary cost of related employees will get reduced to the extent of cost incurred by the company in relation car facility provided to employees for office purposes.

Aggrieved by the Impugned Ruling, the Appellant filed an appeal against the Impugned Ruling before AAAR, Tamil Nadu contending that the facility of car lease provided to the employees under the employment contract would qualify as perquisite under the Income Tax Act ("the IT Act").

Issue:

Whether the GST would be applicable on Car facility extended to employees when the amount of car lease incurred by the company is recovered from employees?

Held:

The AAAR, Tamil Nadu in the case of Order No. AAAR/8/2024 held as under:

• Observed that as per Entry 1 of Schedule III of CGST Act r/w Circular No. 172/04/2022-GST dated July 06, 2022, it can be inferred that the perquisites provided by the employer to the employee in terms of a contractual agreement do not constitute as supply and are kept outside the purview of GST.
• Further observed that, for any transaction to get covered under Entry 1 of Schedule III of CGST Act, two criteria have to be fulfilled, i.e. activity qualifies as a perquisite and the perquisite provided by the employer should be as per contractual agreement.
• Noted that, the provision of Entry 1 of Schedule III of the CGST Act, would be applicable only to the value of actual benefit in monetary terms extended to the employees.
• Opined that, extending the 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 to the employees.

• Further opined that, the aforesaid benefit extended cannot be considered as perquisite and therefore, GST would be leviable on the said transaction.
• Held that, the Impugned Ruling is upheld.

Relevant extract of the Circular:

Circular No. 172/04/2022-GST dated July 06, 2022:

Perquisites provided by employer to the employees as per contractual agreement

Q 5.Whether various perquisites provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee are liable for GST?

Ans: 1. Schedule III to the CGST Act provides that "services by employee to the employer in the course of or in relation to his employment" will not be considered as supply of goods or services and hence GST is not applicable on services rendered by employee to employer provided they are in the course of or in relation to employment.

2. Any perquisites provided by the employer to its employees in terms of contractual agreement entered into between the employer and the employee are in lieu of the services provided by employee to the employer in relation to his employment. It follows therefrom that perquisites provided by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subjected to GST when the same are provided in terms of the contract between the employer and employee.

OFFICIAL JUDGMENT COPY HAS BEEN ATTACHED