The Haryana Authority of Advance Ruling (AAR) has said that free transport provided by an employer to ferry employees to work is subject to goods and services tax (GST), adding a fresh twist to an issue where some other states have taken a different position.
The move also has implications for several employees who depend on office buses to ferry them from home or from the Metro stations in Gurugram and other locations. Following the ruling, an employer can choose to pass on the burden to employees or absorb it.
Gurugram-based Beumer India had approached the Haryana AAR, seeking a view on whether the free transport provided to its employees was subject to GST as no consideration was involved. In addition, it wanted clarity on whether the charging for AC transport facilities would attract a levy. It had hired buses for its employees and argued that this was provided in course of employment and should not be construed as provision of a service.
The company had cited rulings by the Maharashtra and Uttar Pradesh AARs related to health insurance, which held GST should be levied on amount recovered from employees.
But the Haryana AAR contended that the transport facility fell under the purview of "consideration". It also pointed out that employees who were not availing of the facility were paid an allowance under the company's car lease policy. Tax practitioners have often complained of multiple rulings from states creating confusion over the principles of GST, which was introduced a little over three years ago.
Where free transport is provided to employees, ITC will not be available when the motor vehicle is used to transport people and has a seating capacity of less than or equal to 12 +1 (driver). Let us refer to the case of Tata Motors Limited (GST AAR Maharashtra) where an appeal was filed before the Authority of Advance Ruling (AAR) on whether ITC will be available on GST charged by service of bus/motor vehicle provider on hiring having seating capacity of more than thirteen person for transportation of employees to & from workplace.
The decision is somewhat debatable because as per Schedule- I of the CGST Act 2017, the employer can give a gift of Rs. 50000/- to its employees during a year without attracting any GST liability. Here the provision of free transport facility to employees can be considered as a gift to employees. As such if the notional amount which was supposed to be charged from employees for this free transport facility does not exceed Rs.50000/- per annum then it will not attract GST.