A new ruling by the Appellate Authority of Advance Ruling (AAAR) can open a Pandora’s Box when it comes to an employer-employee relationship and the nature of perquisites being provided.

1. The case came up when the National Aluminum Company Limited (NACL), a manufacturer of aluminum metal, decided to appeal against the ruling pronounced by the Odisha Authority for Advance Ruling.

2. Following the order by the AAR, the Commissioner  interestingly also preferred to appeal against the order, challenging that the order is not legal and proper to the extent it has allowed credit for maintenance of guest house, hostel and service utilized for plantation and gardening within the plant area, administrative building.

3. Inward supplies received by NACL for management, repair, renovation, alteration or maintenance service or goods received for furnishing the residential colony will not qualify for input tax credit is found to be correct.

4. Expenditure incurred by NACL towards construction, reconstruction, renovation, additions or alterations or repairs to the residential colony including plantation and gardening is not eligible for input tax benefit as it is nothing but a perquisite.

5. The ruling of the AAR entitling NACL to input tax credit of the tax paid on inward supply of input and input services for maintenance of guest house transit house and trainee hostel is found to be not correct as the same is also a perquisite in favor of the employees.

The AAAR allowed credit to NACL on services availed in relation to plantation and gardening within the plant area including mining area and the premises of other business establishments citing that it is a business necessity for controlling pollution as well as atmospheric temperature.