Medical Insurance premium for employees, pensioners and their family members are taxable under GST

The Telangana State Appellate Authority for Advance Ruling ("TAAAR") in the case of M/s. Hyderabad Metropolitan Water Supply and Sewerage Board (Order in Appeal No. AAAR/12/2022) upheld the ruling passed by Advance Ruling Authority ("the AAR") of not providing the benefit of exemption under entry no. 3 of the Notification 12/2017-Central Tax (Rate) dated June 28, 2017 ("Exemption Notification") wherein the payment was made for medical insurance premium for employees, pensioners, and their family members.

Facts

M/s. Hyderabad Metropolitan Water Supply and Sewerage Board ("the Appellant") is a Board constituted under the provisions of Hyderabad Metropolitan Water supply and Sewerage Act, 1989 with the function and responsibility interalia including supplying of portable water and operations and management of water supply system.

The Appellant is set up by an act of State Legislation to carry out the function entrusted to a Municipality under Article 243W of the Constitution, hence, is a government authority as defined under the Exemption Notification.

The Appellant availed medical insurance services for their employees, pensioners, and their family members. Further, it also availed insurance services for vehicles owned by it.

The AAR vide TSAAR 28/2022 dated June 3, 2022 passed the ruling that payment of medical insurance premium by the Appellant for their employees, pensioners and their family members were not in relation to services entrusted under article 243W of the Constitution of India and hence, the Appellant was not eligible for availing exemption under entry no. 3 of the Exemption Notification.

However, insurance services availed by the Appellant for vehicles which have direct relation with services entrusted in the Article 243W of the Constitution were eligible for exemption under the said entry of the Exemption Notification.

Issue

Whether medical insurance premium taken to provide health Insurance to the employees, pensioners and their family members and Vehicle Insurance Policy taken to provide insurance to the vehicles owned by the Appellant, eligible for exemption as mentioned in Entry No. 3 of the Exemption Notification?

Held

The AAAR held as under:

• The medical insurance services availed by the Applicant for their employees, pensioners and their family members was not eligible for exemption under entry no. 3 of the exemption notification because as per the entry no. 3 of the Exemption Notification, the exemption is only available for pure services which are availed "in relation to any function entrusted to a Panchayat under article 243G of the constitution or in relation to any function entrusted to a Municipality under article 243W of the constitution."
• The AAARreferred the Hon’ble Supreme Court judgement of Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company & Ors. wherein court has held that the exemption notification should be interpreted strictly.
• Therefore, the word ‘in relation to’ mentioned entry 3 of the Exemption Notification shall only include functions which are in direct relation to the entry like water supply and sewerage, however, the insurance provided by the Appellant to its employees and their family members are not in relation to any function entrusted to the municipality.
• Thus, the medical insurance services availed by Appellant for employees, pensioners and their family members were not in direct and proximate relation of water supply and sewerage (functions entrusted in article 243W). Hence, Appellant was not eligible for availing exemption on such impugned supplies.
• For services of vehicle insurance premium, the Appellant is eligible for availing exemption under entry 3 of Exemption Notification as vehicles which were used for transportation of water and sewerage management were essential for performing the functions as entrusted in the Article 243W of the Constitution. However, other vehicles which are not used for performing functions entrusted under the Article 243W of the Constitution the services shall be taxable.
• Further, the said exemption entry has been amended vide Notification 16/2021 Central Tax (Rate) w.e.f. November 18, 2021 which post amendment is restricted to Central Government or State Government or Union Territory or local authority only. Therefore, services availed by the Appellant were not eligible for exemption under entry no. 3 of Exemption Notification post amendment.