Odisha bars input credit under GST for firms maintaining staff guesthouses

An order to this effect has been given by Appellate Authority for Advance Ruling (AAAR), Odisha, in a case relating to NALCO and order given by Authority for Advance Ruling, or AAR

Companies incurring expenditure on inputs used for maintenance of townships and guest houses for its employees will not get input tax credit under the goods and services tax (GST) regime, at least in Odisha.

The order to this effect has been given by the Appellate Authority for Advance Ruling (AAAR), Odisha, in a case relating to NALCO and order given by the Authority for Advance Ruling or AAR. 

Explaining the case, Harpreet Singh, partner KPMG, said NALCO had sought AAR ruling on its entitlement of taking tax credit on inputs used for maintenance of its township, residential colony, guest house, hospital, horticulture and maintenance & security service in townships, claiming that these are used in furtherance of its business.

Singh said, “With this ruling, corporates need to take a re-look at the employment contracts to see how perquisites are defined, as credit of the same may not be available. But subject to fulfillment of other conditions, credit of expenses incurred by employees in the course or furtherance of business may be allowed as input credit.”

NALCO has a refinery at Damanjodi Smelter Plant in Angul in the state. It has townships in Angul, Damonjodi and Bhubaneswar for its employees. It also runs hospitals at Damanjodi and Angul for its employees and has guest houses for touring employees and guests.

The AAR ruled that the company will not get input tax credit on taxes paid for inputs used for management, repair and renovation, among others, for the residential colony, hospitals as these are exempted under GST.

However, it allowed input tax credit of the tax paid on inputs for maintenance of the guest house, transit house & training hostel but excluding the food & beverages provided in such establishments.
 

It also allowed input tax credit for services availed in relation to plantation and gardening within the plant area, including mining area and the premises of other business establishments. However, tax credit will not be given for services used for plantation and gardening falling outside business establishments, it said.

Both the company and the commissioner commercial taxes and GST, Odisha, challenged the AAR’s order. The argument of the company was that residential complexes, among others, are given to employees in furtherance of businesses and hence tax credit should be allowed. The commissioner, on the other hand, submitted that the residential colonies are built for the welfare and benefit of the employees and these cannot be treated as something used or intended to be used in the course or furtherance of business.

The AAAR upheld the ruling of the AAR that inward supplies received by the company for maintaining the residential colony will not qualify for tax credit.

It said provision of housing to its employees by the company is nothing but a perquisite which do not fall under GST.

It also said that for academic interest, even if perquisites do fall within the scope of GST, the benefit of tax credit still cannot be allowed, as any activity for the comfort, convenience and welfare of the company’s  employees cannot be treated as having been done in course or furtherance of business.

As such, AAAR did not agree with the AAR ruling that the company is entitled for tax credit on inputs for maintenance of guest house, among other.

However, it upheld the AAR order on tax credit for inputs used for gardening, among others.