QUESTION

 One factory owner has entered in to agreement with one individual for daily commute of their worker from their place to factory and factory to their place. Nature of vehicle would be at discretion of individual i.e. by bus, by car or any other mode of vehicle. What is the rate for GST for supply of such service by the individual? Whether factory owner would be entitled for input tax credit for such service?

ANSWER

Facts of the case:  One factory owner has entered into agreement with one individual for daily commute of their worker from their place to factory and factory to their place. Rate of GST applicable and whether he would be entitled for input tax credit for such service.

 Law Applicable:

 SECTION 17 OF 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;------------------------------------------

(b) the following supply of goods or services or both-
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or
aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;
(ii) membership of a club, health and fitness centre; and
(iii) travel benefits extended to employees on vacation such as leave or home travel concession:

Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.

 Notification No. 11/2017-Central Tax (Rate)

8. Heading 9964(Passenger transport services)

 

 

(vi) Transport of passengers by any motor vehicle designed to carry passengers where the cost of fuel is included in the consideration charged from the service recipient.






 

2.5









 

Provided that credit of input tax charged on goods and services used in supplying the service, other than the input tax credit of input service in the same line of business (i.e. service procured from another service provider of transporting passengers in a motor vehicle or renting of a motor vehicle), has not been taken.
[Please refer to Explanation no. (iv)]

or

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Interpretation: ITC is restricted under section 17(5) of CGST Act. As per the second proviso to section 17(5)(b) ITC on transportation of employees is available only if  supply of such goods or services or both is obligatory for an employer to provide to its employees under any law for the time being in force.

Therefore in your case if service of transportation of employees is obligatory under any law, then ITC will be eligible otherwise you are not entitled to claim ITC for such service.

So far as rate of tax is concerned, as per aforementioned Notification it is taxable @ 5% with limited ITC and 12% with full ITC.

Same decision is given by Himachal Pradesh Authority of Advance Ruling in case of Prasar Bharti Broadcasting Corporation of India. Ths same is enclosed for your reference.

Conclusion: If service of transportation of employees is obligatory under any law, then ITC will be eligible otherwise you are not entitled to claim ITC for such service. Rate of tax on transportation of passenger service is  5% with limited ITC and 12% with full ITC.

 NOTE: Some consultants may have different opinions regarding inclusion of commuting service in travel benefits. Because in common parlance travel benefits means benefits given to employees for traveling apart from commuting to work place.(Reply dt.23-06-2020)