Appeal on GST Applicability for Employee Car Lease Facility

A Case Analysis of M/s Faiveley Transport Rail Technologies India Private Limited

Particulars	Details
Name of applicant	M/S. Faiveley Transport Rail Technologies India Private Limited
Name of Respondent	Appellate Authority For Advance Ruling, Tamilnadu
Order No.	A. R. Appeal No. 03/2024 AAAR, Order No. AAAR/8/2024 (AR)
Date of Order	10th July 2024

M/s Faiveley Transport Rail Technologies India Private Limited (the Appellant) filed an appeal under Section 100 (1) of the TNGST/CGST Act against an Advance Ruling No.125/AAR/2023 dated 20.12.2023 by the Tamil Nadu State Authority for Advance Ruling (AAR). The Appellant is a Private Limited company engaged in manufacturing, supplying, and exporting equipment for the Rolling Stock industry, including railway door systems, train coach grills, braking systems, and pantographs.

The Appellant sought an Advance Ruling on GST applicability and ITC eligibility. The AAR ruled that GST is applicable on the facility of a car extended to employees in the course of employment. Aggrieved, the Appellant appealed, arguing that car lease provided to employees under the employment contract qualifies as a perquisite under the Income Tax Act and should be exempt from GST as per Entry 1 of Schedule III of the CGST Act, 2017.

Appellant’s Arguments

The company proposes to provide car facilities to employees, with the lease premium paid directly to the leasing company and deducted from employees’ salaries. The Appellant cited CBIC Circular No. 172/04/2022-GST, which states that perquisites provided by the employer to employees under a contractual agreement are not subject to GST. The facility of car lease, being a perquisite, should not attract GST.

Ground of appeal

The car lease qualifies as a perquisite under the Income Tax Act. Eligibility criteria for availing the car lease are irrelevant in determining if it is a perquisite. Salary, including perquisites under employment contracts, is covered under Entry 1 of Schedule III of the CGST Act and is not subject to GST. The car lease policy was not in existence during the AAR filing and was submitted later. Ownership of the car is irrelevant to determining if it is a perquisite.

Arguments by AR

Non-universal extension of car facility is not a valid ground for taxation. Ownership lies with the company, but employees have physical possession and options post-lease. The company is not in the business of leasing cars; the service is exclusive to employees. Though the lease amount is fully recovered, the company incurs some expenses like Road Tax.

Held

In this case, the Appellant-Company pays the car lease premium directly to the leasing company and deducts the same amount from the salaries of the employees who use the car for office purposes. The company argues that this arrangement is a “perquisite” and thus not subject to GST according to the CBIC Circular dated 06.07.2022. However, the authorities opine that merely extending a facility does not qualify as a perquisite; it must have a monetary value, as reflected in Form 12BA.

Since the company owns the cars and provides this service directly, it amounts to a “supply” of services. Only actual monetary benefits provided to employees are considered perquisites and fall under entry No. 1 of Schedule III of the CGST/TNGST Acts, 2017. The car lease amount recovered from employees is not considered a perquisite and is subject to GST.