Authority for Advance Ruling, Maharashtra in case of Posco India Pune Processing Centre Pvt. Ltd. (the applicant) have recently held that since the applicant is not in the business of providing insurance services, the reimbursement of expenses from employees attributable to the health insurance of their respective parents is not a supply of services. Further, the ruling also held that input tax credit (ITC) of the GST paid on hotel accommodation for providing residential accommodation of the Managing Director / General Manager shall not be available as the same is used for personal consumption.

Facts of the case

POSCO – India Pune Processing Center Pvt. Ltd. (the applicant) is a South Korea based company that is primarily engaged in the distribution of steel coils. The applicant has a plant in Pune and in Hyderabad and also distribution centers in Pune, Hyderabad, and Bengaluru.

As per the POSCO group policy, key personnel (Managing Director and General Manager) are deputed to the Indian company. This key personnel is provided with perquisite in the nature of rent-free accommodation. The key personnel is provided with accommodation in a hotel and the cost of the same is borne by the applicant.

Further, the applicant provides medical cover to its employees as well as their parents. Out of the total premium paid (including GST) for parents insurance, the applicant recovers 50 percent of the same from the salary of the respective employee.

Basis of the above facts, the applicant filed an application to seek a ruling on the following:

1. Whether the applicant would be eligible to claim ITC on the stay expenses incurred for its key personnel
2. Whether recovery made towards parent health insurance expenses amount to supply of service

Discussions and Findings

1. We have gone through the facts of the case, documents on record, and submissions made by both, the applicant as well as the jurisdictional officer.
2. Briefly stated, the Applicant provides logistics solutions to POSCO Group companies in India. The subject application has been filed by the applicant with respect to transportation services wherein they undertake dispatch of consignments for POSCO group companies:
3. between Customs Port and the place of business of POSCO group companies for import/export consignments; and
4. From POSCO group companies to their customer in India.
5. It has been submitted that Applicant, either provides transportation services on its own account or engages a third-party transporter. In the former case, the applicant engages its own fleet of vehicles and in the latter situation, the Applicant enters into a back to back arrangement for transportation of goods with Transport vendors/ Transport Agencies (third party). In both situations, it is the applicant who is issuing the Consignment Notes, which are stamped by the receiver of the transported goods. The applicant has also submitted that the third party transporters also issue Consignment Notes which are filed in their respective offices and which are not stamped by the Consignee of the said goods. It has also been submitted that the Applicant has been acting as a Goods Transport Agency (GTA) issuing valid consignment notes in respect of the goods transported and delivered and charging GST @ 12% on such transportation under forwarding charge mechanism.

AAR ruling

On the question of whether the applicant can avail ITC on the hotel stay expenses incurred for a stay of its key personnel, the AAR observed and held that –

The residential accommodation in the hotel is not towards any furtherance of business. The key personnel even if were provided with any other residential accommodation, would have still performed their duties for the applicant. Thus by virtue of restriction imposed by the provision of section 17(5)(g), it was held that the applicant would not be eligible to claim ITC on the same.

Further, with respect to recovery of parents medical insurance premium from the employee, the AAR observed and held that – 

In light of the fact that it is the insurance company that provides the services of insurance, the activity of recovering 50 per cent of the premium amount cannot be treated as recovery made towards the supply of any services. Accordingly the same is not liable to GST, also credit cannot be claimed of GST paid on such medical insurance policy.