Mumbai: In its recent order, the GST-Authority for Advance Rulings (AAR), Maharashtra bench, has held that partial recovery of transport costs from its employees by a private company is not a “supply” and hence not subject to the goods and services tax (GST). 

This ruling will gladden companies that increasingly provide transport facilities to their employees. Companies across sectors are gradually asking employees to return to their workplace, either full-time or based on a hybrid model.

This ruling, which has a persuasive effect, will come in useful in similar situations. 

Integrated Decisions and Systems India, a private sector company, is engaged in software development and allied services which it provides to its overseas parent company. Between July 2017 and March 2019, it spent Rs 1.6 crore on hiring cars and cabs for transporting its employees. It paid GST on this entire sum. 

Several companies ask employees to bear a certain portion of the cost—be it for canteen or transport facilities. During the given period, this company recovered Rs 29.3 lakh from its employees, as their share of transport costs. The issue was whether GST would apply on the amount recovered from its employees. 

For GST to be levied, there needs to be a supply of goods or services. The GST-AAR bench, in its order, stated: “The provision of transport facilities to the employees is a welfare, security and safety measure and is not at all connected to the functioning of its business.” 

It also noted that the partial amounts recovered from the employees for use of such transport facilities are part of the amount paid to the transport vendors, on which the full GST has already been paid. Thus, the amounts collected from employees will not be subject to GST. 

A similar view was taken earlier by the Maharashtra bench, in the case of Tata Motors. 

Sunil Gabhawalla, indirect tax specialist, sums up: “The correct view is that there should be no recovery on nominal sums received from employees as there is no taxable supply.”