ITC eligible on Tax Paid for Leasing/Renting Motor Vehicles for Women’s Safety

In the recent case of M/s. CMA CGM Global Business Services (India) (P.) Ltd., the Tamil Nadu Authority of Advance Ruling (AAR) has provided a significant ruling regarding the eligibility of Input Tax Credit (ITC) under the Central Goods and Services Tax (CGST) Act for the transportation of women employees.

Key Facts:

The applicant, M/s. CMA CGM Global Business Services (India) (P.) Ltd., operates in the Information Technology Enabled Services (ITeS) sector, providing back-office support services. Under the Tamil Nadu Shops and Establishments Act, 1947, employers are legally required to ensure the safety and security of women employees, particularly those working late shifts between 8 PM and 6 AM. In compliance with this law, the applicant procured services for leasing, renting, or hiring motor vehicles to provide transportation for women employees. Importantly, no cost was recovered from the employees for this transportation service.

Given the applicant’s cautious approach, they did not initially avail of ITC on the transportation services until April 2022, despite having paid GST on the services, either through reverse charge mechanism (RCM) or through suppliers' forward charge mechanism (FCM).

Legal Issues and Ruling:

The applicant sought clarification from the AAR on three key questions:

1. Whether ITC is available for leasing, renting, or hiring motor vehicles to provide transportation for women employees as mandated by law?
2. Can the applicant avail of the entire ITC for providing transport facilities during all shifts, given the legal requirement for women’s safety?
3. Can ITC be claimed for the periods prior to March 2022, before the applicant started availing ITC?

AAR's Decision:

The AAR, Tamil Nadu, ruled that the applicant is eligible to claim ITC on services related to the leasing, renting, or hiring of motor vehicles used to ensure the safety of women employees working late hours, as per the Tamil Nadu Shops and Establishments Act. This ruling is subject to compliance with the eligibility conditions under Section 16 of the CGST Act.

Key points from the ruling:

• ITC Eligibility: ITC is available for services provided to women employees if it is mandatory under any law. The transportation services must specifically be for women employees arriving or leaving the workplace between 8 PM and 6 AM.
• Timeline for ITC Claim: The ITC can only be claimed from May 28, 2019, which is the date when the Tamil Nadu Government issued a notification making it obligatory to provide such transport services. Therefore, any services availed before this date cannot be considered for ITC.
• Conditions under Section 16: The applicant must ensure compliance with the provisions of Section 16 of the CGST Act, which sets out the conditions for claiming ITC, such as holding valid tax invoices and ensuring that the services are used for business purposes.
• Circular Clarification: The Circular No. 172/04/2022 issued by the CBIC reaffirms that ITC is permissible for services that an employer is required to provide to employees under statutory obligations. However, the circular does not override the timelines and conditions established under the CGST Act.

Implications:

This ruling emphasizes the importance of compliance with statutory obligations when claiming ITC. Employers must ensure they are fully aligned with the law when availing ITC on services related to employee welfare. While the law provides relief to businesses ensuring women's safety, the timelines for claiming ITC and the specificity of services for which ITC can be claimed are strictly regulated.

Key Takeaways for Businesses:

1. Compliance with Laws: ITC is available only if the services are mandated by law. In this case, the Tamil Nadu Shops and Establishments Act required employers to provide safe transport for women working late hours.
2. Claiming ITC: The ITC on services such as renting or leasing motor vehicles for women employees can be claimed only if the services are rendered after May 28, 2019, and if all conditions under Section 16 are fulfilled.
3. Documentation and Process: Businesses must maintain proper invoices and records and ensure that all GST payments on services procured are properly accounted for to claim ITC.

This ruling is significant for companies operating in sectors like ITeS, where night shifts are common. It reinforces the importance of understanding the nuances of GST compliance and making timely ITC claims within the statutory framework.