GST Update | AAR | Transportation facility provided by Company to employees in terms of employment contract is not taxable | nasscom | The Official Community of Indian IT Industry

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GST Update | AAR | Transportation facility provided by Company to employees in terms of employment contract is not taxable

Tejasvi

@tejasvi

March 26, 2021

Public Policy

133

The Authority for Advance Ruling (AAR), Uttar Pradesh in the case of North Shore Technologies Private Limited (Applicant) recently ruled that providing subsidised shared transport facility by the applicant to its employees in terms of employment contract through third party vendors, would not be construed as "supply of service" by the applicant to its employees.

A brief summary of the case is provided below:

The Applicant is a private limited company, engaged in the business of software development, consultancy & staff augmentation services from its business premises. The Applicant provides optional subsidised shared transport facility to their employees for to and fro commutation between office and residence. This facility is provided by third party vendor who issues bill in the name of the applicant and charges GST therein. As regard to the payment to the third party vendor, towards transport charges, the applicant deducts subsidised amount from the salaries of employees and bear the balance cost itself.

In view of the above, a question arose whether the subsidised shared transport facility provided to employees in terms of employment contract through third party vendors, would be construed as "Supply of service" by the company to its employees.

The AAR noted that in terms of S. 7 of Central Goods and Services Tax Act, 2017 (CGST Act), for transaction to qualify as supply, it should essentially be made in the course or furtherance of business. The AAR observed that the applicant is in the business of software development and staff augmentation services and not in the business of providing transport service. Rather, this is a facility provided to employees under obligation of Law of the Land. Moreover, this activity is not integrally connected to the functioning of their business. Also, the said activity is not a factor which will take their business activity forward.

AAR also placed reliance on its earlier ruling in the case of M/s Ion Trading India Private Limited as well as ruling by AAR Maharashtra in the case of M/s Posco India Pune Processing Center Private Limited wherein it was categorically held that recovery of insurance premium by the Company from its employees cannot be supply of service under GST law. Moreover, the AAR rightly referred to the press release dated 10 July 2017 issued by Central Board of Indirect Taxes (CBIC) wherein it was clarified that " supply by the employer to employee in terms of contractual agreement entered into between the employer and the employee, will not be subject to GST”.

Based on the aforesaid discussion, the AAR held that arranging the transport facility for the employees and recovery from employees towards such transport facility, under the terms of the employment contract, cannot be considered as supply of service in the course of furtherance of business. Therefore, the same will not be liable to be taxed in the hands of Applicant.

The above decision principally held that the supplies by the employer to the employee in terms of contractual agreement entered into between the employer and the employee, will not be subject to GST.

A copy of the ruling is attached for your reference. Trust the above is useful.

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