No GST leviable on free bus transportation facility provided to its Employees by the Employer

The AAAR, Gujarat in the matter of M/s. Emcure Pharmaceuticals Ltd. (Advance Ruling (Appeal) No. GUJ/GAAAR/APPEAL/2024/09 dated December 30, 2024, dismissed the appeal filed by the Department and reaffirmed the ruling passed by AAR, Gujarat in the case of In Re: M/s. Emcure Pharmaceuticals Ltd. [GUJ/GAAR/R/2022/22 dated April 12, 2022], thereby ruling that Applicant is not liable to pay GST on free bus transportation facility provided to its employees. Further, it was ruled that the ITC on motor vehicle for transportation of person having approved seating capacity of more than 13 persons, not being blocked under Section 17(5)(b)(i) of the CGST Act, and thereby, could be availed by the Applicant.

Facts:

The Assistant Commissionerate, CGST, Ahmedabad North Commissionerate, ("the Appellant") has filed an appeal before AAAR, Gujarat, against the ruling passed by AAR, Gujarat ("GAAR") in the case of In Re: M/s. Emcure Pharmaceuticals Ltd. [GUJ/GAAR/R/2022/22 dated April 12, 2022] ("the Respondent")wherein it was held that:

• GST at the hand of M/s. Emcure is not leviable on the amount representing the employees' portion of canteen charges which is collected by M/s. Emcure and paid to the canteen service provider.
• GST at the hand of M/s. Emcure is not leviable on free bus transportation facility provided to its employees.
• ITC on GST paid on canteen facility is blocked credit under Section 17(5)(b)(i) of the CGST Act and inadmissible to M/s. Emcure.
• ITC on GST paid on hiring of Bus, having approved seating capacity of more than thirteen persons used for transportation of passengers is admissible.

The Appellant put forth the following points in the appeal filed against the ruling passed:

• GAAR granted erroneous benefit of exemption of GST on free bus transport provided by the Respondent.
• GAAR on one hand held that the GST is not leviable on the Respondent on free bus transportation while on the other hand it was held that ITC on GST paid on hiring bus is admissible.
• Placing reliance upon Section 16(2)(c) of the CGST Act, ITC is not entitled unless the tax charged in respect of such supply has already been paid.
• ITC is admissible only when GST at appropriate rate is paid by the Respondent to the third-party service providers.
• As the Respondent did not recover the amount from its employees for bus transportation there is no employer-employee relationship.
• That the ruling passed relating to point that GST at the hand of the Respondent is not leviable on free bus transportation facility provided to its employees, is erroneous.

Issue:

Whether GST leviable on bus service provided to employee under contractual agreement and whether ITC of such motor vehicle could be availed?

Held:

The AAAR, Gujarat in the matter of Advance Ruling (Appeal) No. GUJ/GAAAR/APPEAL/2024/09 held as under:

• Noted that, the Respondent has arranged the free of cost transportation facility to its employees in non-AC buys, which is provided by the third-party vendor, as part of its HR policy as per the employment agreement.
• Further Noted that, the said issue has been duly clarified by the CBIC vide Circular No. 172/4/2022-GST dated July 06, 2022wherein on the said issue, the clarification has been issued stating that "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"
• Opined that, the perquisite of providing free bus transportation by the Respondent to their employee in terms of contractual agreement entered between the Respondent and their employees are in lieu of the service provided by the employee to its employer in relation to the employment and would not be subject to GST.
• Ruled that, the Respondent is not liable to pay GST on free bus transportation facility provided to its employees.
• Further Ruled that, the ITC on motor vehicle for transportation of person having approved seating capacity of more than 13 persons, not being blocked under Section 17(5)(b)(i) of the CGST Act, and thereby could be availed by the Respondent.

Relevant Provisions:

Section 17(5)(a) of the CGST Act:

"5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:-

(a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, namely:-

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving such motor vehicles;"

Schedule III of the CGST Act:

"ACTIVITIES OR TRANSACTIONS WHICH SHALL BE TREATED NEITHER AS A SUPPLY OF GOODS NOR A SUPPLY OF SERVICES

1. Services by an employee to the employer in the course of or in relation to his employment."

Circular No. 172/4/2022-GST dated July 06, 2022:

FFICIAL JUDGMENT COPY HAS BEEN ATTACHED