Authority for Advance Ruling (AAR) Haryana in case of YKK India Private Limited has ruled that ITC is not eligible on buses or cars hired for employees for transportation to factories from various locations.

YKK India Private Limited (Applicant) was engaged in the business of supply of slide fasteners, chains, sliders etc. Some of the employees of the applicant were engaged in manufacturing the Final Products and various other managerial service employees carried out their day to day affairs from the said factories. The said Factories of the Applicant were situated at a remote location in Haryana where public transport services were very minimal which hindered transportation of employees to reach the factories.

  The Applicant had engaged various contractual service providers who provided transportation services and ensures that employees of the applicant are able to reach the factories in time. It is in this regard that the Applicant enters into the contract with the said suppliers for hiring buses as well as cars. The Applicant contracted to pay a monthly fee and applicable tax to the Contractor for the provision of Input Service. In view of the contractor, the aforementioned GST payment on the invoices raised by the Contractor falls within the meaning of input tax credit and the Applicant is of the view that he is eligible to take credit of the GST paid subject to fulfillment of the conditions  specified in Chapter V of the Act which deals with Input Tax Credit,

AAR observed that if any commercial vehicle is  hired for transportation of passengers, it would be covered by the phrase “rent-a-cab”. In other words, any person who provides motor vehicle designed to carry ‘passengers’ on rent would be included.  This also implies that it includes renting of motor cars, motor cabs, taxi cabs, minibuses, buses and all other motor vehicles which are designed to carry passengers, irrespective of their capacity to carry passengers. The contentions of the applicant that hiring of buses which can carry a large number of passengers would  not qualify  under “rent-a-cab” is found to be untenable and the activity of the contractor in the instant case, providing buses or cars on hire to the applicant, is specifically covered under the meaning of “rent-a-cab”, which makes the impugned supply as ineligible for ITC in terms of Section 17(5) of the CGST/HGST Act, 2017.

AAR Further observed that nothing has been brought on record to suggest that the impugned service is not a service which is obligatory for an employer to  provide to its employees under any law for the time being in force; or that such inward supply of services is being is used by the applicant for making an outward taxable supply of the same category of services or as part of a taxable composite or mixed  supply.

Accordingly, the applicant is not eligible for input tax credit of GST charged by the contractor for the hiring of buses/cars for the transportation of employees.