Page 33 - GSTL_7th May 2020_Vol 36_Part 1

2020 ] INSURANCE PREMIUM RECOVERED FROM EMPLOYEE IS NON-TAXABLE J15
(iii) If GST is payable on the such amount recovered from the em-
ployees, whether the proportionate GST paid by the applicant
to insurance company towards parental insurance would be
admissible as input tax credit against supply of insurance ser-
vices for employees’ parents?
Contention of the applicant : There would be no GST implication on the
medical insurance premium paid by them for their employee, spouse and
their children in terms of employee-employer relationship. They are in the
business of development and export of software which is its business activity
in terms of the definition of business in terms of Section 2(17) of the CGST
Act. Facilitating insurance services for employees’ parents is definitely not an
activity which is incidental or ancillary to the activity of developing software
or activity in the course of or in furtherance of development of business.
Hence, facilitating the medical insurance for employees’ parents, hence as per
law there appears no supply of service and the said activity of the applicant
appears to be non-taxable under GST.
Discussion and finding of AAR : We find that the issue raised in the applica-
tion is squarely covered under Section 97(2)(e) of the CGST Act, 2017 being a
matter related to determination of the liability to pay tax on any goods or ser-
vices or both. We therefore, admit the application for consideration on merits.
The first question to decide is to whether the amount recovered from the em-
ployees towards parental insurance premium payable to the insurance com-
pany is a “supply of service” by the applicant to its employees. But as per the
Section 7(1) of the CGST Act, 2017 “Supply” emphasis has been made upon
the term “in the course or furtherance of business”. We further observe that
the applicant is in the business of development and export of software to the
Overseas Company and not in the business of providing insurance services.
From the details/documents provided by the party we observe that the ap-
plicant is transferring whole amount (Rs. 5,000/- per employee for both the
parents), collected from their employee towards parental insurance, to the in-
surance company, which in turn providing insurance cover to the parents of
the employee.
We also observe that the Maharashtra Authority for Advance Ruling (AAR),
in case of M/s. Posco India Pune Processing Centre Private Limited, vide Order
No. GST-ARA-36/2018-19/B-110-Mumbai, dated 7-9-2018 [2019 (21) G.S.T.L.
351 (A.A.R. - GST)] has ruled that :
“There is no way that 50% amount recovered can be treated as
amount received for service rendered, since this entire amount is paid
to the insurance company which is providing mediclaim facilities to
the employees and their parents. Such recovery of 50% premium
amounts by the applicant from their employees cannot be supply of
service under the GST laws”.
Observing this, the Authority has ruled that :
“The recovery of Parents Health Insurance expenses from employee
does not amount to “Supply of Service” under the GST law...”
From aforesaid discussion, we observe that the recovery of premium amount
from employee and subsequent deposit it with insurance company cannot be
treated as supply of service in the course of furtherance of business. Provid-
ing insurance facility to employees’ parents is nowhere connected with the
business of the applicant.
Accordingly, we are in unison with the applicant that facilitating insurance
services for employees’ parents is definitely not an activity which is incidental
or ancillary to the activity of developing software, nor can it be called an ac-
tivity done in the course of or in furtherance of development of software as it
is not integrally connected to the business in such a way that without this the
business will not function.
GST LAW TIMES  7th May 2020  33